The Role of Government in Public Budgeting and Finance

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Table of Contents

Introduction
Linkage of the case to Budgetary Policies and Processes
Main Body of the Project
Conclusion
Works Cited

Introduction

Public budgeting and finance are concepts that are common when explaining the role and responsibility of the government in managing public finance. In this case study, the researcher will critically review the budgetary policies and processes used in the United Arab Emirates. According to Stouffer, the government of the United Arab Emirates is heavily in the economy of the country not only as a regulator but also as a player in the business sector (45). The government controls some of the leading corporate entities. The case study primarily focuses on the role of government in budgeting and finance as a planner of public resources. The study will look at the significance of the government as a leading participant in promoting the economy’s growth through its various investments into a number of industries.

The United Arab Emirates is one of the leading economies in the MENA region, considered the second largest after Saudi Arabia. The economy of the country is heavily dependent on the oil and gas sector, just like many other regional countries which have rich oil reserves. However, the government has been shifting focus from the oil and gas sector to the service sector. According to Stouffer, the government has been spending heavily on the country’s infrastructure as a way of sparring growth in other sectors (82). Tourism has been one of the sectors that the government has been trying to promote by heavily investing in security, social amenities, transport and communication infrastructure, and in many other areas that can promote local tourism. According to Kemp, in its budgetary policies and processes, the government has been making deliberate efforts to ensure that public resources are spent proactively to spur growth in other sectors of the economies other than the oil and gas sector (89). The impact of the government efforts has been evidenced in terms of economic growth. The city of Dubai is currently one of the top global tourist destinations in the world, thanks to the effort that the government has made in investing in this sector.

Linkage of the case to Budgetary Policies and Processes

The deliberate effort of the government to increase its investment in the tourism sector as shown in the above case can be closely linked to the topic of budgetary policies and processes. Public budgeting is defined differently in different fields. The definition is given by the political class is different from the way it is defined by the economists. In this context, the study will use the definition given by economists. Robinson defines public budgeting as “a matter of allocating resources in terms of opportunity cost where allocating resources to one consumer takes resources away from another consumer, ” (92). It means that the government has to be very keen to ensure that the allocation of resources is done in the best way possible.

The chosen option should be preferable to the foregone option. In this case, it has been demonstrated that the government of the United Arab Emirates is currently involved in investment in the tourism sector. It means that further investment into the petroleum sector is a foregone cost. It must be demonstrated that the foregone investment into the petroleum sector is justifiable. It means that the investment in the tourism sector is able to generate enough income for this firm to exceed what would have been obtained from the petroleum sector if the resources would have been used there. It is, therefore, very clear that this case is closely linked with the budgetary policies and processes.

Main Body of the Project

Budgetary policies and processes are some of the most important roles of the government as a planner of public resources. It is important to start by clearly defining these two concepts. Robinson defines budgetary policy as “government attempts to run a budget in equilibrium or in surplus,” (44). The primary reason for developing a budget is to ensure that public expenses are in line with the revenues to reduce or possibly avoid public debt. The estimates are given in line with what the government expects to collect within a given period. Budgetary policies seek to avoid budget deficit as much as possible unless it is assured that there will be alternative sources of finance to fund the deficit. Wildavsky and Swedlow define the budgetary process as a “process by which governments create and approve a budget,” (67). The creation and approval of a budget is a very complex process that requires the involvement of a number of experts. Financial, economic, legal, and political experts must come together in this process. They have to start by reviewing what the government has to spend within a given financial year, the primary needs that cannot be ignored by the government within that period, and conduct a delicate balance between the limited resources and the unlimited needs. These experts must balance development needs for the country with the need to meet recurrent expenditure. According to Hinka, an economy that is overburdened by recurrent expenditure cannot grow effectively (84).

In the case provided, it has been explained that the government of the United Arab Emirates has been shifting its focus from the oil and gas sector to the service sector. Emirates such as Dubai have completely become service-based economies, promoting tourism and business. This shift has been made possible through serious investment into the transport and communication sectors. In the transport sector, the government has made heavy investments in rail and road transport. Rail transport in Dubai is one of the best railway networks in the region, comparable to those in the developed economies in Europe. The government has not only invested in the roads, but also in purchasing public service vehicles. This choice to invest in the transport sector has had a positive ripple effect on other sectors of the economy, proof that the government made the right decision to invest in this sector.

According to Wildavsky and Swedlow, improved means of transport are one of the reasons why tourists prefer going to Dubai when on vacation (95). They can visit various social amenity centers within a short time because traffic jams even during peak hours have been eliminated. The business community has also benefitted a lot from the improved transport network within this city. According to Robinson, Dubai is currently one of the top business hubs used by various top multinational corporations as a center from where their products are distributed to the international community (58). Chinese exports have been using this city as a hub from where their products are sold to the international markets. It means that the government is achieving its objective of trying to shift its economy from that which relies on the oil and gas sector to that which relies on the service sector. The budget planning is based on a three-year cycle.

Kemp says that this cycle was developed to ensure that the government can have a strategic plan to focus on the development path that it wishes to take (43). There is a yearly financial budget that helps in reviewing the progress being made within the three-year period. According to Baker and English, one of the cardinal rules that have to be followed in public budgeting is to ensure that the primary needs of the public are met (76). The government of the UAE is headed by the political class. The political class knows that the real power lies with the public. They know that the only way of remaining in power is to ensure that the needs of the public are met so that issues such as revolution are not witnessed. Sometimes the interest of the political class may not be effectively focused on meeting developmental projects. For instance, the minimum wage is always one of the emotive political issues.

The political class knows that increasing the public wage bills may affect the government’s capacity to meet its developmental agenda. However, there is always the fear that containing the wage bill through strategies such as early retirements, sustainable salaries, and such other related strategies may cause public dissatisfaction. In the United Arab Emirates, this is one of the areas that the government has been keen to manage as it seeks to spur economic development. For instance, the Dubai government has always maintained a manageable wage bill by empowering the private sector to be the leading investors in various sectors. As such, instead of focusing on managing the wage bill, the government has time to focus on development issues in the economy.

Conclusion

Public budgeting and public finance are very critical issues of governance that determine the economic growth of a given country. As shown in the discussion above, government planners must be conscious of one of the cardinal rules of economics that unlimited needs must always be balanced to ensure that they can be met using limited resources. Budgeting policy is to always have a budget surplus as a way of avoiding debts. Debts always limit the growth of the economy. As such, when drawing a budget to meet the numerous needs, this should happen within the set limits. Expenses that are not urgent can be pushed to later days so that more urgent public needs can be met. From the case, it is evident that the government of the United Arab Emirates has been keen on balancing between recurrent expenditures, which are often classified as urgent expenses, and developmental expenditures.

Its involvement in the investment sector has earned its income that is spent on developmental projects. The country’s transport and communication infrastructure are one of the most developed in the region. These developments have made it easy to do business in cities such as Dubai. The government gets to benefit from such developments in various ways. First, its businesses become more efficiently run because the movement of people and goods is made simple. Secondly, the improved infrastructure has attracted more foreign direct investment into the country, meaning the country is able to earn more income through tax.

Works Cited

Baker, Harold, and Philip English. Capital Budgeting Valuation: Financial Analysis for Today’s Investment Projects. Hoboken: Wiley, 2011. Print.

Hinka, Roman. Budgeting: Approaches and Shortcomings. München: GRIN Verlag GmbH, 2007. Print.

Kemp, Sid. Budgeting for Managers. New York: McGraw-Hill, 2003. Print.

Robinson, Nelson. Windy: Government Expenditure. Minneapolis: Lerner Publications Co, 2015. Print.

Stouffer, Tere. The Only Budgeting Book You’ll Ever Need. Avon, Mass: Adams Media, 2012. Print.

Wildavsky, Aaron, and Brendon Swedlow. Budgeting and Governing. New Brunswick Transaction Publ, 2001. Print.

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The Role of Government in Public Budgeting and Finance

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