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This blog is for students, managers and those lay people who are interested to contribute to, comment on or simply share their workplace problems and are keen to learn about issues relating to public finance, corporate finance and macro-economic management affecting their lives.

Tuesday, May 11, 2010

Do you want to know how governments make their budgets?

Public Financial Management is the field of economics that deals with budgeting of a government entity. As the major focus of financial responsibilities of the government is development and maintenance of order, Public Financial Management entails management of revenues and expenditure and includes a wide range of activities like financial planning, authentication by the stakeholders and regulatory framework for execution including acquisition and contracting, financial reporting and review.

Corporate Financial Management entails acquisition and allocation of a corporation's funds or resources, with the goal of maximizing shareholder wealth (i.e., stock value). Funds are acquired from both internal and external sources at the lowest possible cost and may be obtained through equity (e.g., sale of stock) or debt (e.g., bonds, bank loans). Resource allocation is the investment of funds; these investments fall into the categories of current assets (such as cash and inventory) and fixed assets (such as real estate and machinery). Corporate finance must balance the needs of employees, customers, and suppliers against the interests of the shareholders.

Public Financial Management is driven by certain principles such as:

  • Financial resources are allocated against a plan. The planning and financing, therefore, must be undertaken in synchronization with each other.
  • The financial decisions should be based on the general principles of economic costs and benefits and resource should be committed after ensuring that the benefit exceeds the cost.
  • The expenditure should be controlled to keep it within the allocation and should be incurred in accordance with rules and regulations and canons of financial propriety after proper authorization.
  • A system of internal control should be put in place to ensure achievement of objectives, protection of assets, elimination of waste, misuse, fraud and pilferage.
  • A system of reliable accounting should be ensured to undertake review of budget execution and provide input for decision making.
  • In order to keep the stakeholders informed on the execution of budget, proper internal and external audit should be periodically conducted.


  1. Remaining part of this ARTICLE will be published after comments on this part.

  2. We are interested in the entire article

  3. Ok. It will be posted in next 24 hours

  4. plz can u use less technical language so it wud be easier for a comon man to understand as well. thanks

  5. The Article is very technical but it has been written in layman language. It will hopefully give you an insight into budgeting systems in the world.