8 Common Problems facing the management of Government Finances

Isn’t finances a core support to any government? Government finances elaborate on how a nation will manipulate its revenues and expenditures in the private and public sectors. Critical and well-analyzed financial plans need to be undertaken decisively. In certainty, proper implementation of government policies concerning funds commands transparency and credibility. As small mistakes can affect the entire fiscal year. The government has financial management, which helps in making these crucial decisions. However, this does not mean they are exempt from some common problems in managing government finances.

Problems in managing government Finances:

  • Budget Plan
  • Revenue Sharing
  • Tax Collection
  • Policy Making and Implementation
  • Corruption
  • Auditing
  • Loans
  • Uncertainties Preparedness

1. Problem in budgeting

Poor budget planning on natural disasters. For example drought, plague infestation, epidemic or pandemic. It demands a sudden budget plan to manage such situations. This forces the government treasury to squeeze their budget for other aspects or borrow funds for that purpose. Thus making the government dependent on well-wishers to offer their donations which can end up being mismanaged.

2. Upheavals in revenue sharing

Government revenue sharing to private and public sectors need great analysis. Development should be simultaneous in every sector for a great economy GDP growth. Using ratio strategies manipulated by political parties or prominent personnel interest will hinder the fairness in revenue management.

3. Problem in tax collection

A high percentage of government finances come from tax collection. The tax payment measures and procedures for individuals, businesses, and firms are well outlined. If some individuals and firms fail to comply with these methodologies, it makes budget planning constrained.

4. Issue of policy making and implementation

In a case where you find the lawmakers breaking the same law is much devastating to believe. Law making is not an easy process. The policies are entitled to be obeyed and observed at any cost. Failure to conserve said laws mainly in the economy sector leads to a failed government. This will hinder fairness in controlling finances.

5. Increased corruption cases

Corruption cases had become a rampant in many developing countries. For instance, a recent research on corruption perception index in Africa by Quartz Africa. Show a list of the most corrupt countries in Africa with high scores. Thus, corruption is the most threat and a menace to managing government finances. The risk on corrupting public finances is making the country to be poor and retard its development.

The direct consequences of corruption are the wasting of resources, low efficiency in resource allocation, reduced investment and low economic growth

(Shleifer and Vishny, 1993Yang and Zhao, 2004)

In most cases, these revenues are raised by the government through high-interest loans or by sacrificing its parastatal to private investors.

6. Irregular internal audit

Auditing is a very important government processes. It helps in evaluating the transparency and accountability of its finances. I can highly recommend any auditing firm to relate its course to this report done in China by China Journal of Accounting Research [ Vol 5, Issue 2, pages 163-186] carried on June 2012. Regular financial auditing in finance ministry can go a long way in trimming moss and tracking revenue and expenditures processes. Improvements and advancement can be implemented where necessary.

7. Increased Loan requests

There has been an increase on loan requests rate. Usually, the loan tag along high interests and strict terms and conditions. Sometimes, not all loan requests get state approval by the donors. Mismanagement of a single penny got through loans acts as a hard blow to the economy.

8. Partial Uncertainties preparedness

The intensity at which uncertainties will occur can never be accurate. To work it out. The resources to cater for natural calamities remains to be an estimate. If they persist for a long time, it drains country’s finances forcing it to source outside. Loans, donations and grants pay a boost for the post impact of the calamity. It smashes the economy leaving it constrained.

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