Public Expenditure Management in Government
Public Expenditure Management (PEM) is a new approach to the problem of allocating state money through collective choices. PEM works through a different budget policy mechanism than conventional budgeting. This difference can be seen in two categories:
1. PEM provides conventional procedural regulatory supplements to substantive policy norms. PEM is not only enough for the government to implement the right procedure but more importantly is how the government creates efficient policies to achieve the desired results and effect of public expenditure on the economic growth.
2. PEM has a very broad scope in various institutional and government management arrangements. PEM recognizes that budget outcomes are unlikely to be optimal if the public sector is less structured and well managed, or the information provided to policymakers is not optimal thus encouraging them to make distorted decisions
The main elements of public expenditure management, are:
a. Aggregate Fiscal Dicipline. The total budget must be an explicit, powerful decision, which not only accommodates the placement needs. This total budget must be made before the details are determined, and must last in the medium term.
b. Allocative Efficiency. Expenditures must be based on government priorities and the effectiveness of the public programs that are implemented. The budget system must encourage the relocation of funds from programs with low priorities to high priorities and from programs with low to high effectiveness.
c. Operational Efficiency. Agencies must produce goods and services at a cost level to achieve goals that are efficient and at a cost level that is competitive with the market.
Since the beginning of its growth, budgeting has been established as a form of procedure that repeatedly occurs, and usually with little change from year to year using the ratio of government resources among its agents and oversight of each amount issued.
So budgeting is the work of choice of relinquishment related to public finance. This characteristic distinguishes budgeting from other government actions that affect public spending, such as national planning and cabinet policies.
There are several basic principles in budgeting, namely comprehensiveness (budget must include income and expenses), accuracy (budget must reflect actual transactions and flows), annuality (budget must cover a fixed time period, usually at one fiscal time), authoritativeness (funds the public spent must be under the attorney's authority, and finally transparency (the government must show budget information in the form of estimates and actual expenditures on a regular basis).
These budgeting principles are to be implemented and implemented through detailed procedural rules, including the scope of the budget, information therein, timetable for taking certain actions, forms to be used, authorization is needed before public funds are issued, etc. Each of these principles is based on formal rules that are implemented by budget controllers in the central government and related departments. The accumulation of principles and procedures is part of the due process in budgeting.
Due process is like an assessment, and if these procedures are voiced, the outcomes are correct. Thus, these results must be estimated in relation to the procedures that produce these outcomes and not those related to substantive criteria.
The budgeting process encourages the government to centralize management and oversight of public expenditure. This centralization goes hand in hand with uniformity in budget procedures. All expenditure units must use the same form, operate according to the same time and follow the same steps in applying the budget.
In a small government, the budget process is carried out by the central office that makes regulations, oversees permits, prepares budgets and oversees spending.
The Due Process approach provides the benefit of forming a financial supervision base in government, ensuring that financial information is rational and accurate, uniform and timely. The government cannot regulate its own expenditure effectively if due process is violated materially.
However, due process is an inadequate basis for managing public spending because it will systematically lead to conflicting and undesirable results.
Government expenditure management (PEM) deals with the focus of incentives on the informal aspects of budgeting, participant attitudes, and behavior influenced by budget rules.
Second, PEM is also influenced by information of policy makers and managers who spend public money. The condition of this information is influenced by two related factors: the costs of producing and disseminating relevant information, and the benefits that the information producer (agent) has more user information (principle). Third, PEM relates to the formal role in which the central supervisor has official authority to decide everything from the total budget to the various expenses.