Understanding Public Finance Management

DR. KRISTAL HYKAJ
Blog
2 MINS READ
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24 September, 2022

Public Finance refers to the use of government spending and revenue in order to benefit the economy. Public Finance Management is an important public administration process based on the laws, rules and principles that sovereign governments set. The government's main goal is to manage the economic situation and the turbulences that might come along the way.  Depending on the financial condition of a country, whether it is an economic recession or rapid economic development, the government manages public finance policies in order to stabilize macroeconomic indicators.

From the theoretical point of view, the main objective of the PFM is to achieve a balanced and sustainable budget with a reduced debt ratio through stronger financial management and control. When the country has rapid economic development, to help the economy and manage the debt ratio, public finance must contribute to lowering the debt percentage and reducing the budget deficit. However, there are many debates between policymakers and practitioners in practice regarding this generalization of situations.

On the other hand, Public Finance has constantly been discussed in the sense that it is impossible to see a direct impact on the economy only with its implementation. It must coordinate with the monetary policy and its instruments, which are drafted, approved and implemented by the Central Bank. Without cooperation and coordination between the two, it is impossible to control and manage macroeconomic indicators, such as unemployment, inflation, economic growth, etc.

Every country in the world has faced consecutive economic and financial crises. The biggest question that arises is whether lessons learned from past situations can serve as a pathway or a model to deal with future crises. Or does every crisis have its unique symptoms, and is it difficult to draw parallels with other crises? The question remains a hot topic of discussion.

Last but not least is to discuss the current crises that we are facing all around the world. All developed and developing countries are facing a higher inflation rate, mainly mentioning the high electricity prices. Many governments are alarmed about the next “great recession” that might come. In this situation, countries are trying to suggest helpful methods that can improve and recover the economic situation in the country. In our recent webinar, we have analysed different countries and the methods they use in order to maintain a balanced budget. In order to choose a suitable method to put into practice, we should consider other specific components for each country, such as economic growth, debt ratio, financial capacity, and other macroeconomic elements.

You can watch the webinar here: Understanding Public Finance Management

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