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BFN411: PUBLIC FINANCIAL MANAGEMENT
Define public financial management.

Ola and Offiong (2008) define public financial management as “the measures put
in place to control people’s money or funds.” You will note that the word ‘public’
means the people while ‘finance’ connotes funds or money. The management of
public funds is known as public financial management. Ekpung (2001), also
defines public financial management as the management of the flow of money or
financial resources through an organisation (public), whether it is a company, a
school, a bank, or a government agency. The actual flow of money or financial
resources as well as claims against money in a judicious way is its concern. Public
financial management is a specialised, functional area found under the general
classification, public administration and finance.

What is the aim of public financial management in government?

The provision of essential public services.

The control of certain sectors of the economy
The provision of essential public services.
The control of certain sectors of the economy

Define monetary policy.

Monetary policy is essentially a programme of action undertaken by the monetary

authorities generally the central bank, to control and regulate the supply of
money with the public and the flow of credit with a view to achieving
predetermined macroeconomic goals. – Dwivedi D.N.
Monetary policy consists of a government’s formal efforts to manage the money
in its economy in order to realise specific economic goals. Three basic kinds of
monetary policy decisions can be made about:

the amount of money in circulation the level of

interest rate the functions of credit markets and
the banking system.
The combination of these measures is designed to regulate the value, supply and
cost of money in an economy, in line with the level of economic activity. Excess
supply of money will result in an excess demand for goods and services, prices will
rise and balance of payments will deteriorate. On the other hand, inadequate
supply of money can lead to stagnation in the economy, hence retard growth and
development. Consequently, the central monetary authority would normally
attempt to keep the money supply growing at an appropriate rate to ensure
sustainable economic growth and to maintain internal and external stability.

State the monetary policy Instruments of an economy.

The primary instrument of monetary policy is Open Market Operation (OMO),
Reserve Requirements, Discount Window Operations and Moral Suasion. The
techniques in use are- direct/portfolio control approach and indirect/market
intervention. There is a basic difference between the mechanisms of direct and
indirect monetary control. Under the system of direct monetary control, the
monetary authority uses some criteria to determine monetary and credit targets
and interest rates which are the intermediate targets to attempt to achieve the
ultimate objectives of policy.
Indirect monetary control only the operating variables related to the path of the
intermediate variables. The operating variables, particularly the monetary base
are managed, while the market is left to determine interest rates and credit
allocation. These instruments place restrictions on a particular group of
institutions –especially deposit banks – by limiting their freedom to acquire assets
and liabilities. This method is employed mainly in developing economies in which
the financial infrastructure necessary for operating indirect monetary control is
under-developed.
On the other hand, the indirect method is used mainly in developed financial
systems. It relies on the power of the monetary authority as a dealer in the
financial markets to influence the availability and the rate of return on financial
assets, thus affecting both the desire of the public to hold money balances and
the willingness of financial agents to accept deposits and lend them to users. This
is an indirect monetary policy instrument introduced to influence the level of
money supply in the economy. This involves the issuance of short-term
instruments such as treasury bills and other securities to the public subscription.
Cash Reserve Requirement is the least amount of reserve a bank must maintain
with Central Bank of Nigeria expressed as a ratio of each individual banks total
liability. Liquidity ratio is the minimum percentage amount of reserve which shall
be in form of liquid assets expressed as the banks total deposit liability,
promissory notes and certificate of deposits which the banks must keep with the
CBN.

What is a fiscal policy?

Fiscal policy is the manipulation of government finances by raising or lowering
taxes or levels of spending to promote economic stability and growth (Shafritz &
Russell 2005). Fiscal policy is the manipulation of government expenditure and
taxation in order to influence economic performance (Ola & Offiong 1999).

Identify objectives of fiscal policy.

(i) taxation (this will be discussed in the next unit)

(ii) price stabilisation
(iii) equity in income distribution

(iv) increase in investment in the economy

(v) maintain a favourable balance of payments

(vi)exchange rate stabilisation

Define taxation.
Taxation is defined as a compulsory payment or levy imposed via legislation by
the government of a country on the income of the residents. The Joint Tax Board
defines taxation as “the legal demand made by the Federal Government or the
State Government for its citizens to pay money on income, goods and services”.
Public financial management involves how funds are generated, allocated and
managed by the government (Ola and Offiong, 2008). Nigerian income depends
so much on the incidence of tax, and different types of taxes are imposed on
individuals, businesses and corporate bodies. Government also borrows funds
from different available sources in order to meet its general responsibilities. The
oil and gas sector, for sometimes now, has contributed greatly to the revenue
base of the country as it has helped in the long run to solve social and political
problems. It has also helped the government in addressing a lot of issues
concerning the populace (despite Nigerian increasing population) the attitude of
people towards payment of tax has been in the low level as discussed later in this
unit under tax evasion and avoidance.
The attitude of the people has negatively affected the incidence of tax and those
who find themselves in the ‘corridor’ of power have not helped matters because
they do not pay their taxes, either. In view of these, the reliance of government
on taxes for public expenditure has been relatively low hence the dependence on
revenue from oil and gas sector. This has affected the numerous public projects
embarked upon by different tiers of government. Sense of responsibility by
citizens as tax payers has been neglected and even corporate bodies have also
joined this ‘wagon’. Invariably, the standard of living of the people has been
affected because of shortage of revenue through taxation.

Identify types of tax in Nigeria

Direct taxes

Progressive tax

Regressive tax

Neutral (progressive) tax

List the purposes of Taxation.

1. to maintain general administration, defence, law & order, and social services
provided by government

2. to reduce income and wealth in order check inequality

3. to control consumption of goods and services considered non-essential and

harmful
4. to check inflation by reduce the volume of purchasing power

5. to service national debt and to provide retirement benefit etc.

6. to provide subsidies in favour of preferred sectors of the economy-for example,

agroallied industries

7. to implement government policies since budget is now an adjunct to monetary

policy

8. to serve as a dependable fiscal tool to plan and direct the economy, by shaping
the growth and development of the country.

Differentiate between tax avoidance and evasion.

Tax evasion is the manipulation of forms when rendering returns and claims as
regard the taxpayer’s income status and the accompanying responsibilities. This
is a direct violation of the law and it involves a fraudulent or deceitful effort by
the tax payer to escape legally stated obligation. It is a criminal offence as it
involves illegal means of reducing the tax payable by making false returns or by
deliberate omission from the return of some source of income like declaring
lower income or refusing to pay altogether. Tax avoidance
This is where the individual takes advantage of the loopholes in tax regulation and
manipulate his/her economic situation accordingly to pay low tax. It occurs when
a tax payer takes a perfectly legal course to lower the amount he has to pay in
taxes like the taking a life assurance policy, deductible from the total amount
subjected to tax or claiming the existence of an aged mother or father- where
there not which statutorily attract some deductions from the taxed sum and
declaring that he has children whereas he/she has none

Summarise the objectives of government accounting.

1. to determine the extent of probity and accountability in the management and

disbursement of government resources

2. to determine propriety of transactions and their conformity with established

rules

3. to provide financial information useful for control and co-ordination of

activities; determining and forecasting the flows; balance and requirements of
short term financial resources; monitoring performance in various facets of the
economy; planning and budgeting for effective allocation of resources and
assessment of socio-economic, political conditions of government
establishments.

What are the bases of government accounting?

1. The grouping account into funds is the main characteristic of government
accounting; that is, various accounts are grouped into funds. Fund is a separate
“fiscal entity in which resources are held, governed by special regulation,
segregated from other funds, established for the specified purpose on which the
resource of the fund may be expanded.”

2. Cash basis-this is the basis under which the receipts are recorded when
cash is received while expenditures are recorded when cash is paid irrespective of
the accounting period in which the services are rendered of benefits received.

3. Accrual basis-this is the system where revenue is recorded when earned

and expenditure recorded when benefits are received, notwithstanding that the
receipt and payment of cash may take place, wholly or partly, in another
accounting period.

4. Commitment/obligation basis-this is an accounting system concerned with

the recording of local purchase order, contract or job order issued in the
memorandum book (referred to as vote book) as liability pending the time when
the fund will be available for settlement.

Name two main sources of government income in Nigeria.

Government (Public) revenue can be defined as income generated by public

sector from various services rendered. Revenue is the other arm of the
public/government accounts. Income generated by the public sector from various
services rendered could mean a portion of total funds required by government for
the purpose of financing its activities. We know that government earns money to
sustain itself and perform it duties of national building through fiscal measures.
The money required by government to perform its duty must be from a source
and utilised on recurrent and capital expenditure. In Nigeria, there are two main
sources of government revenue-oil and non-oil. This became imperative since
exploration of oil became major contributor to the national budget.

List the sources of revenue for states.

Statutory appropriations from the federation account

Non-statutory grants
Total recurrent revenue less recurrent expenditure

Budget surplus or deficit

Capital grant from federal government

Internal loans
External loans
Total capital receipts

Differentiate oil-revenue from non-oil revenue in Nigeria.

Oil Revenue
This source consists of royalties, petroleum profit, rent, earnings from direct sales
of crude oil to domestic market by Nigerian National Petroleum Corporation
(NNPC), gas flaring penalties, pipeline licenses etc.

Non-oil Revenue
These are Direct and In-direct taxes. Since independence, federally-collected
revenue was largely revenue from non-oil sources, accounting for an average of
92 percent of the total receipts while revenue from the oil sources accounted for
the balance. As can be deduced from available records, from the 1970s to this
day, the non-oil sector revenue accounted for the balance of about 20 to 30
percent receipts annually, to complement the oil sector receipts which form the
mainstay of the sources receipts of Federal Republic of Nigeria. Government also
borrows from the public through issuance of bonds and using innovative finance
techniques, public-private partnerships, franchise or licensing of private sector
providers etc. are also applied where the need arises.

What is government expenditure?

Wagner’s Law predicts that the development of an industrial economy would be

accompanied by an increased share of public expenditure in gross national
product (GDP). This is not an exception in Nigeria, as a developing nation, trying
to expand its industrial base – manufacturing, agriculture, mining, extractive
industry etc. The scope of government expenditure has obeyed this law since the
economic base and government expenditure has been expanding over the years.
Furthermore, Wagner’s law suggests that a welfare state evolves from free
market capitalism due to the population voting themselves ever increasing social
services.

Name two broad parts of government expenditures.

recurrent and capital expenditures.

Classify government expenditure in Nigeria.

In developing countries like Nigeria, government spending can be classified as
follows.
1. Administration of law and order
Police, law courts, prisons, civil service, government agencies, foreign affairs

2. Defense

Army, navy, air-force

3. Social amenities
Education, health, housing, social welfare, environment, recreation.

4. Economic development

Agriculture, mining, power and electricity, oil and gas, commerce and industry,
transport, communication.

5. Miscellaneous
National debt interest payment, grant to local governments, social security,
pension payment, aids to other countries.

Explain fiscal federalism.

Nigeria is a federal system of political administration with fundamental

implications for the fiscal system and economic management of the country. The
economic role of the public sector in a federal system is the joint responsibility of
the multi-levels of government with joint responsibility of local, state and federal
governments in performing the fundamental functions of socio-political
administration and economic management. Complications in the fiscal system are
technically and constitutionally handled and resolved in the light of political
factors and pressures that gave birth to the union. The process of economic
transformation and development calls for the collaboration and participation of
many interest groups in an economy such as household, firms, public and private
sectors etc.
The role played by government or public sector in achieving desired changes in
the structure of the economy is unique. This uniqueness of the government sector
is formed from the fact that apart from being the element of the economy, the
government sector plays a decisive role in achieving macroeconomic objectives of
stability, growth and development through a package of economic policy
measures and legal provisions.
Identify the priority accorded each tier of government in Nigeria.
The allocation principles of revenue sharing formula that are in use at the
inception of the present democratic dispensation are- equality of states, internal
revenue generation, land mass, terrain, population density and derivation. These
principles are expressed in the Nigeria’s 1999 Constitution under Section 162 (2),
which provides that “ derivation accruing to the area which is home to natural
resources being exploited for foreign exchange earnings, takes a magnitude of not
less than thirteen percent of the revenue accruing to the Federation Account.”
So far, a revenue allocation formula was proposed by the Revenue
Mobilisation, Allocation and Fiscal Commission in 2003 and submitted to
the National Assembly through the Presidency, as prescribed by the 1999
Constitution. There emerged a structure of sharing of revenue from the
federation account as typified below. A. Vertical formula

This shows the structure of allocation to the three tiers of government.

S/N Beneficiary Percentage
1. Federal Government 46.00%
2. State Government (including FCT) 33.33%

3. Local Governments (including Area Councils) 21.00%

Total 100.00%

B. Horizontal formula
This shows the structure of allocation among state governments (including
FCT) and among local governments (including area councils) - the three tiers
of government. S/N Principles of Allocation Percentage i. Equality 45.00 ii.
Population 25.60 iii. Population Density 1.45
iv. Internal Revenue Generation Effort
8.31 v. Land Mass 5.35 vi. Terrain 5.35
vii. Rural Roads/Inland Waterways 1.21

viii.Portable Water 1.50 ix. Education 3.00 x. Health

3.00
Total 100.00

Define budget.

According to Chartered Institute of Management Accountants, a budget could be

defined as a plan stated in quantitative monetary terms which is prepared and
approved prior to a defined period of time usually showing planned income to be
generated and/ or expenditure to be incurred during that period and capital to be
employed to attain a given objective.
Budget is applied by users differently. In the individual / personal, business and
public sector the scenario differs. For personal budget instinct and personal
idiosyncrasies come to play; while in the business sector liquidity and profitability
are the guiding barometer. The public sector budget considers the availability of
funds and sociopolitical consideration uppermost alongside regulations cum
policies.
State the purposes of budgeting.

Budget is a management tool. Pandey (2005) ascribes the following to be the

purpose of budgeting- for both business and public sector.
Planning – compels planning to take place
Coordination – helps to coordinate and integrate all efforts to achieve objectives
Control – facilitates control by providing definite expectations in planning phase
Evaluation – ensures evaluation of past with present and future
Communication – improves the quality of communication
Utilisation – optimum use of resources
Improvement – leads to productivity
Efficiency – it leads to self assessment of the organisation.

Explain government budget.

The description of government intentions and policies presented by a financial

plan with details of estimates stating the receipts and proposed expenditures
under various classifications is known as government budget.

Name the importance of budgetary control in the public sector.

To plan – a budget provides a detailed plan of action for activities over a definite
period of time. By planning, many problems are anticipated long before they
arrive and solutions sought through careful study. Example relates to
government’s plan for infrastructural development in a particular year for an area
that is in need.

To coordinate – budgeting aids managers in coordinating their efforts so that

objectives of the organisation are harmonised with the objectives of its
constituents. This will help in achieving result. Like the different sector need to be
achieved and prioritised in the light of the scarce resources.

To communicate – a budget is a communication device. The approved budget

indicating the details of planned activities assist in communicating the plans. The
copies are distributed to the different ministries, extra ministerial departments
and agencies.

To control – the budget ensures that plans and objectives are being achieved.
Control in budgeting may be synthesised effort aimed at keeping management
informed of what pre-determined plans will be achieved. Control comes through
variance analysis and reporting

To motive – careful budgeting control motivates the human resource of the

organisation.

Itemise the essential features of budgetary control.

It is a projection of the flow of funds and how the funds will be expended to
achieve stated objectives of individuals, households, business firms, institutions
and governments.

Budget is a financial plan which typically is made up of detailed estimate of

expenditures, revenues- surplus or deficit for the present and successive fiscal
years.

Government budget is not mere accounting statement of proposed expenditures

and anticipated revenues; it bears the fruits of conscious policy decisions about
the amount involved.

Government budgetary policy is fiscal policy directed to specific activity within the
framework of the budget. Essentially, government budget is the instrument
employed in the actualisation of development plans hence, has legal backing. The
Nigerian system of budgeting is usually for a year- from January to December.

Explain appropriation in budgetary process.

The process of budgeting cuts across all political settings whether it is developed
or developing nation. Budgeting is a major preoccupation in government at the
federal, state and local levels of governance. Budget is the tool of decision and
literally the biggest process. It involves a lot of lobbying at both chambers of the
national assembly. This is also found at the state legislature floor. For this reason
Nigerian politicians has been pre-occupied with what Aaron Wildavsky termed the
“politics of the budgetary process”.

What is the role of executive in budgetary process?

Proper planning and budgeting for public expenditures

Effective and efficient administration of government revenues

Proper use of budget resources

Effective control of public expenditure

Accounting and reporting on public finance

Full accountability for all public spending

Identify the stages of budget making in Nigeria.

(i) executive preparation and submission

(ii) legislative consideration and enactment

(iii) execution
(iv) audit and review.

Explain project management

Management of big projects that consist of a large number of activities pose

complex problems in planning, scheduling and control; especially, when the
project activities have to be performed in a specified technological sequence with
the help of PERT and CPM.
PERT = Program Evaluation and Review Technique
CPM= Critical Path Method
The phases of network analysis are planning, scheduling and control. Public
sector project might be done through the use of social Cost-Benefit Analysis. It
considers a number of issues such as environmental problems, opportunity costs
and transfer prices. It is more subjective than the normal capital budgeting
technique especially forecasting of future outcomes of proposed projects. It
attempts to consider all the consequences of embarking on a project to
determine the viability of a project, the time cycle that would be beneficial to the
project and the cash flow or profit (cash flow is preferable)

List the objectives of network in Project

Management to minimise total cost to minimise
total time to minimise cost for a given time to
minimise time for a given cost to minimise idle
resources.
Discuss project planning and management approach in public sector.

Management of a project involves planning expediently through coordinating

efficiently the factors there in. Planning has not been given priority as projects
were less complex; the rule of thumb method would work well. However, today,
as projects have become more complex, project managers and public
administrators have associated themselves increasingly to systematic planning
and management. This section of the unit will lead you through the complexity
services and you will affirm the need for systemic outlay of projects. Projects are
in stages- a life cycle which include: planning, execution and phase- out. At each
stage of this life cycle, a variety of skillful requirements are involved.
In effect:
project unit human resources and with diverse knowledge and skills
some go from project to project as they are needed –consultants.

In project management and planning the size and scope of projects varies widely
according to the nature and purpose of the project. It is worthy of note, that all
projects have something in common. The life cycle can be arranged into five
phases:

1. concept-the need for the project

2. feasibility-expected costs-benefits analysis
3. planning-details of work-human, time and cost
4. execution-ensure project
5. termination-target achieved.
Define public debt.

The short-fall between domestic savings and the desired level of investments in
most countries (especially developing ones) has led to both internal and external
borrowings to fill the gaps. These led to financial liabilities (public debt) by
government to individuals and institutions within and outside the country. In a
developing country like Nigeria, the Central Bank on behalf of the government
borrows money from both internal and external sources. Public debt therefore is
the amount of money owed by the government to institutions, governments and
individuals’ resident in or outside Nigeria. Deficit financing is the creation of extra
purchasing power by government which then utilises it for purchasing away
resources from the market.
It could also be defined as the net increase in the amount of money in circulation
where such an increase result from a conscious government policy designed to
encourage economic activities which ordinarily would not have taken place; and
from another angle amounts to domestic credit creation which is not off-set by
increased taxation, more restrictive bank credit policy and similar deflationary
measures. This involves running down the government accumulated cash
balances, net borrowing from the banking system, issuing of new currency by the
central bank, net borrowing from abroad and drawing down of foreign assets
There is no single approach to economic development; multi-frontal attack on
social, economic, political, cultural and attitudinal obstacles to it, which deficit
financing is one tool. On the whole, you should note that there can be no deficit
financing without deficit budgeting.
What are the sources of Pubic debt?

1. banks- as part of their investment portfolio banks invest in these debt

instruments

2. non-bank public- like state/local governments, savings institutions, insurance

companies, statutory boards/corporations and individuals

3. central bank- as the bank of last resort which absorbs the unsubscribed portion
of government securities floated in the primary market. Instrument of domestic
debt carry different maturities terms- short, medium and long.

Discuss public debt management in Nigeria.

The classical principles of loan finance rationalise loans to provide intergeneration
equity, pay-as-you-use, capital formation, old-age insurance, self-liquidating
projects, adjusting distribution and reduction of tax friction. Borrowing can be
considered as a second best alternative to money creation during the period of
unemployment. Foreign loan is seen as a means of filling domestic savings gap,
especially in the face of dwindling government revenues from domestic sources. It
is particularly so, during fluctuating prices of primary commodities/exports and
hence dwindling foreign exchange earnings. External borrowing also enables a
developing country increases its rate of real investment, just as it is seen as an
engine of growth. In this sense, it increases per capita Gross National Product
(GNP) (Cairncross, 1961); hence, debt acts as a source of capital formation. Public
internal borrowing acts as an anti-inflationary measure by mobilising surplus
money in the people’s hands. Such resources can be diverted from unproductive
channels e.g. jewelry, real estate to productive ventures. Once incurred, debt
must be serviced through the payment of interest and amortisation charges as
and when due. Government incurs a larger debt through continual net borrowing
as the interest rate increases. If the entire amount of the interest charges were to
be paid with tax revenue then the actual amount of tax collection must also rise
continually. As a result, this imposes a burden on the public.
In Nigeria the Central Bank of Nigeria is statutorily with the responsibility of debt
management in conjunction with the Federal Ministry of Finance and other
agencies and the state counterpart. Recent development has witnessed the
establishment of Debt Management Office under the supervision of the Vice
President’s Office.

Define national debt.

As stated in the summary of last unit, there is a difference between public debt
and national debt. The former is the debt owned by the Federal Government,
while the later comprises the debts of federal, state, local governments and public
corporation. That means national debt is the total amount of debt owed by all
tiers of government- federal, states and local.
Some of the debts owed by and negotiated for by the state government and
guaranteed by the federal government with foreign interest as well as those with
domestic contractors/investors. The local government constitutional scope for
debt negotiation is domestic. It is at the collating point that all the indebtedness is
summed as national debt.

List measures adopted by successive government in Nigeria to restructure the

county’s debt.

to evolve strategies increasing foreign exchange earnings thereby reducing the

need for external borrowing

to set out the criteria for borrowing from external sources and determine the type
of projects for which external loans may be obtained

to outline the mechanism for servicing external debts of the public and private
sectors

to outline the role and responsibilities of various organs of the federal and state
governments as well as the private sector in the management of external debt.

Discuss national debt management strategies in Nigeria.

Every country has its own way of managing its national debt and for this purpose,
a number of policy instruments with different objectives have over time evolved.
Debt management policies are, for the most part, designed to go in tandem with
the broader macroeconomic objectives of stabilisation and growth. It is important
to note that debt management strategies relate largely to the question of
repayment and reduction of domestic as well as foreign debts.
From the last unit we deduced that debt management is the technical,
operational, and institutional arrangements engaged in managing a country’s
liabilities and in this stage, the debt management include that of all tiers of
government.
The technical aspect focuses on the need to determine the level of external debt
required and to ensure that terms and condition of those borrowings are in
consonance with the future debt service capacity of the country.

Institutional arrangements include the administrative, organisational and

monitoring aspect of managing both new borrowings and the total stock of debt.
Nigeria has made efforts by successive government administration to restructure
the county’s debt over the years. Measures adopted include, refinancing,
rescheduling, restructuring of debt arrears and out right payment/settlement of
the debt.

Name public enterprises in Nigeria.

the railway transport project

coal mining corporation
electricity (Electricity Corporation of Nigeria)
marine services
State the objectives of public enterprises.

distribution of certain products and services as government

assistance/intervention

checking efficiency in the allocation of scarce resources

bridging the gap between the haves and have not.

Name the facilities provided by the World Bank to member countries.

Structural Action Programme (SAP)
Structural Adjustment Facility (SAF)
Enhanced Structural Adjustment Facility (ESAF)

List the functions of the African Development Bank.

1. Use the resources at its disposal for financing of investment projects relating to
the economic and social development of its members

2. Undertake and participate in the selection, study and preparation of projects

enterprises and activities contributing to such development

3. Mobilise both within Africa and outside Africa, resources for the financing of
such investment programme
4. Promote investment in Africa of public and private capital in projects or
programme

5. Provide such technical assistance as may be needed in Africa for the study,
preparation, financing and execution of development project or programme

6. undertake such other activities and provide such other activities as may
advance its purpose

List the objectives of International Development Association.

1. To provide development finance to the less developed counties on easy and

flexible terms

2. To promote economic development, increase productivity and improve the

standard of living in the developing countries

3. To supplement the objectives and activities of the World Bank

What are the functions of the World Bank?

1. To partake in the development of territories of it members by facilitating
the investment of capital for productive purpose and to that of less developed
countries.

2. To promote private foreign investment by means of guarantees on

participation in loans and other investment made by private investors

3. To promote long-range balance growth of international trade and

maintenance of equilibrium in the balance of payments of member countries by
encouraging international investment for the development of their productive
resources.

4. To arrange the loans made or guaranteed by it in relation to international

loans through other channels so that more useful and urgent small and large
projects are prioritise

List three multi-nationals and their functions.

International Monetary Fund (IMF)

The IMF is one of the multi-lateral institutions; an affiliate of the World Bank,
involved in the act of providing loans for needy nations. It is established by
different countries after the World War II with the objective of providing
exchange stability throughout the world and increasing liquidity to enhance
balanced multilateral trade through the cooperation of the member nations.
Objectives of IMF
The main purposes of the IMF, summarised in the article of agreement, are as
follows.
1. To promote international monetary cooperation through a permanent
institution that provides the machinery for consultation and collaboration on
international monetary problems.

2. To facilitate the expansion and balanced growth of international trade and

to contribute to the promotion and maintenance of high levels of employment
and real income and to the development of productive resources of all members
economy.

3. To promote exchange stability, to maintain orderly exchange arranges

among member and to avoid competitive exchange depreciations.

4. To assist in the establishment of a multilateral system of payments in

respect of current transactions between members and in the elimination of
foreign exchange restrictions which hamper the growth of world trade.

5. To give confidence to members by the Fund’s resources available to them

under adequate safeguards, thus providing them with opportunity to correct
maladjustments in their balance of payments without resorting to measures
inimical to national or international prosperity.

6. In accordance with the above, to shorten the duration and lesson, the
degree of disequilibria in the international balance of payments of members.
International Development Association (IDA)
The International Development Association (IDA) was established in 1960 as an
affiliate to the World Bank. There are many projects such as irrigation, railway
construction, education, public health, housing etc. in under-developing countries
which are vital to general economic development, with long gestation period and
insufficient yield returns to meet the amortization charges. The IDA was
established to supplement the World Bank’s development assistance and to make
available loans to the developing countries on soft terms and for long period. That
is, IDA is ‘Soft Loan Window of the World Bank.’
Objectives of IDA
1. To provide development finance to the less developed counties on easy and
flexible terms

2. To promote economic development, increase productivity and improve the

standard of living in the developing countries

3. To supplement the objectives and activities of the World Bank

International Financial Corporation (IFC)

International Financial Corporation (IFC) was established in July 1956 as an
affiliate of the World Bank to provide finance to the private sector. You may note
that, conventionally, World Bank loans are to governments of the member
countries; or it provides loan capital to the private enterprises with the guarantee
of the member governments.
Moreover, the World Bank does not offer risk capital. The IFC was with specific
purpose of providing risk capital to the private sector/enterprises in the
developing countries without government guarantee.
IFC investment policy
The main features of the IFC investment policy are as follows.
1. It considers predominantly industrial enterprises which contribute to economic
development of the country.

2. The project to be financed must be in the productive, private sector.

3. The IFC affirm that the enterprise has experience and competent management.

4. The loan must not be more than half of the capital needed for the enterprise.

5. The minimum investment to be made by the IFC to a single enterprise is fixed at

$100,000:00 with no upper limit.

6. The rate of interest for the loan is determined by mutual negotiation,

depending on the degree of risk involved and other terms of investment.

7. The loans are disbursed in lump-sum or in installments and are repayable in a

period of 5 to 15 years.