Unit-III

Public Expenditure
Introduction
Public expenditure is a crucial aspect of public
finance, with its significance increasing in
modern times. In the 19th century, economists
lacked a clear classification of expenditure by
Central, State & Local Governments & believed
government spending was wasteful. However,
with the complexity of economic activities,
public expenditure has become increasingly
important.
Introduction
It encompasses development functions such as
education, public health, and social securities,
which have increased public expenditure. Public
expenditure has become a significant part of
public finance studies due to its impact on state
economic activities and the impact of public
expenditure on production, distribution, and
overall economic activities.
Meaning of Public Expenditure
Public expenditure refers to Govt expenses
incurred for maintaining government and
preserving society's welfare. It is made by
public authorities like the State, Central, and
Local governments to meet common needs &
protect citizens. Measured by Parliament and
independent executive bodies, it is divided
into current and capital expenditure.
Meaning of Public Expenditure
“Every article of expense that is incurred
beyond what necessity absolutely requires
for the preservation of social order and for
protection against foreign attack, is a waste
and an unjust and oppressive imposition
upon the public.”
Prof. Parnell
Meaning of Public Expenditure
Accordingly, they advocated the policy of
‘Laissez-faire’. However, Adam Smith in his
famous book ‘Wealth of Nations’ observed that
the sovereign has three main duties to perform
as
a. To protect the society from violence and
invasion of other independent societies.

b. To protect against injustice

c. Erecting and maintaining certain public works.

Meaning of Public Expenditure
In the present era, the state's activities have
increased, making public expenditure crucial for
justice and efficiency. The state spends money
more effectively than private individuals,
making it essential for the state to participate in
various fields. Prof. Musgrave advocated for
public expenditure to deal with daily activities
like resource allocation, redistribution,
stabilization, and commercial activities.
Canons of Public Expenditure

Public expenditure canons are fundamental

rules governing state authority's expenditure
policy, with economists like Bucher
recommending guidelines.

Therefore, such rules have to help insight into

the problem. In case of any pit-fall it must
easily be checked at the early stage.
 Canons of Public Expenditure

In this regard, under-mentioned guidelines

should be followed:
A. It should promote he welfare of the society

B. It should stimulate the social welfare

C. An eye should be kept whether the funds are

properly utilized for conducting social welfares.
 Canons of Public Expenditure
Public expenditure principles determine efficiency and
propriety; Prof. Shirras suggests cannons for effective
expenditure management.
1. Canon of Benefit:
“Other things being equal, expenditure should bring with
it important social advantages such as increased
production, the preservation of social whole against
external attack and internal disorder and as far as
possible a reduction in the inequalities of income. In
short, public funds must be spent in those directions
most conductive to the public interest i.e., maximum
utility is to be attained in public expenditure.
 Canons of Public Expenditure

Therefore, this law states that the public

expenditure should be planned in a such way
that it results in achievement of maximum
social advantage. Public money should not be
utilized for the benefit of an individual or
particular group rather it should equitably
confer benefits or the entire society. Thus, this
canon is synonymous with the principle of
maximum aggregate benefit.
 Canons of Public Expenditure
2. Canon of Economy: The canon of economy
emphasizes the importance of economical
spending, avoiding wasteful and extravagant
spending, and efficient public expenditure. The
state should focus on developing the
community's productive powers while
prioritizing the present and future.
“Economy means protecting the interest of tax-
payers not merely in effecting economies in
expenditure, but in developing revenue.”
Prof. Shirras
 Canons of Public Expenditure

3. Canon of Sanction: The canon of sanction

outlines the proper policy for public
expenditure, preventing arbitrariness and
vested interests' influence. It requires spending
authorities to obtain sanction from a higher
authority, ensuring no unwise spending is
allowed. It also requires proper utilization of
sanctioned funds and audits of public accounts
to control arbitrary spending.
 Canons of Public Expenditure

4. Canon of Surplus: The canon of surplus means

that governments should avoid deficits. It should aim at
surpluses in the budget. They should not spend more
than what they earn just as an individual does. Thus,
everybody should live within one’s mean.
“Public authorities must earn their living and pay
their way like ordinary citizens. Balanced budgets
must, as in the private expenditure, be the order
of the day. Annual expenditure must be balanced
without the creation of fresh credits
unrepresented by the new assets.”
 Canons of Public Expenditure

The canon of surplus budgets suggests that public

authorities must have sufficient revenues to
meet current expenditures and have a surplus
for unforeseen futures. However, the balance of
budgets depends on the economy's conditions. A
balanced budget is desirable when full-
employment and price stability, while a surplus
budget reduces excessive purchasing power in
inflationary conditions. In times of depression, a
deficit budget increases aggregate demand and
brings equilibrium between demand and output.
 Canons of Public Expenditure

Other Canons: Besides, the above noted canons of

public expenditures, there are other few canons of
public expenditure suggested by some other
economists.
These canons are given below.
1. Canon of Elasticity: The government's expenditure
policy should be flexible, allowing for resource
diversion during emergencies without disrupting
economic life or hindering financing for
development programs. It should be elastic rather
than rigid, ensuring the government's ability to
adapt to the country's needs.
 Canons of Public Expenditure

2. Canon of productivity: The canon implies that the

public expenditure policy should be such as to
encourage the production in the country. It means
that the major part of the country’s public expenditure
should be allocated for production and development
purposes.
3. Canon of Equitable Distribution: Public expenditure
should ensure equal distribution of wealth and income,
especially in countries with income and wealth
inequalities. This can be achieved by introducing
benefit schemes for poorer sections, such as medical,
education, housing, and pensions, and prioritizing
 Canons of Public Expenditure

4. Canon of Neutrality: Public expenditure should

maintain neutrality in the economic system,
aiming for increased productivity, reduced
income inequality, and improved economic
activity and exchange relationships. This does
not mean static stability, but rather a focus on
enhancing the relationship.
 Canons of Public Expenditure

5. Canon of Certainty: Public authorities must

have a clear understanding of public
expenditure's purpose and extent, ensuring a
proper expenditure plan. This is achieved
through the preparation of a budget, which
provides detailed expenditure information for
the entire financial year. Without this certainty,
fiscal discipline cannot be maintained, leading
to wastage and overspeeding.
 Canons of Public Expenditure

6. Canon of Programmes: Public expenditure

should be planned according to specific
programs to ensure proper and rational use of
funds. Without clear-cut programs, priority
patterns may be compromised, leading to less
urgent programs being satisfied with limited
resources.
 Canons of Public Expenditure

7. Canon of Performance: Performance budgeting

is crucial for proper utilization of public
expenditure for specific purposes. Regular
reviews and follow-up measures ensure proper
utilization of funds and avoid wasted or over-
spent funds.
 Theories of Public Expenditure
Classical theorist did not play much attention to
frame any theory regarding the increase of
public expenditure. They simply regarded it as
an administrative institution which only
concerns with performing certain protective
functions. The state has to do very little with
the provision of public services, the modern
state is termed as welfare state in which the
Govt.-has enormous functions to perform. For
the first time Adloph Wagner, a fiscal theorist
propounded an empirical theory to effect the
govt. inequality grows larger.
Public Expenditure Growth:
Wagner’s Law
In the 1880s, German economist Adolph
Wagner introduced the law of rising public
expenditure, predicting that modern industrial
society would increase political pressure for
social progress & demand social consideration
in industry. This law has been largely ignored,
and its definition remains unclear.
Public Expenditure Growth:
Wagner’s Law
Absolute Growth: Public expenditures, not
surprisingly, have risen vastly in dollar terms. As
shown in Table, line 1, such expenditures
(including all levels of government) have
increased by a multiple of nearly 2000 over the
past ninety years. But this is not a meaningful
way of looking at expenditure growth prices over
the same period (line 13) rose by a multiple of
13, so that the multiple in terms of constant
dollars (line 2) drops to 135. also population
(line 12) more than tripled, so that the constant
dollar multiple, measured on a per capita basis
 Public Expenditure Growth:
Wagner’s Law

Growth in Relation to GNP:

The increase in productivity during the period
has led to a nearly six-fold rise in per capita
income. It is crucial to focus on the public
sector's share in total expenditures, as the law
of rising public expenditures is defined in terms
of a rising public sector share.
 Public Expenditure Growth:
Wagner’s Law
Expenditure-to-GNP Ratio:
Over the past ninety years, public expenditures
to GDP ratio increased from 6 to 35%, six-fold
due to the public sector's size, indicating
substantial growth, but not drastic as
suggested by total dollar terms.
Public Expenditure Growth:
Wagner’s Law
The US expenditure growth, measured by the
ratio of total public expenditures to GNP, shows
a 2.4 percentage point increase from 1890 to
1913, followed by a 7.5 point increase from
1913 to 1929. The rise continued in the 1960s
& 1970s but declined, reaching a constant ratio
in the 1980s.
Wagner's law of a rising expenditure share was
borne out, but at a slowing rate, and has come
to a halt in recent years.
 Public Expenditure Growth:
Wagner’s Law
Expenditure Elasticity:
Table recasts data in terms of expenditure
elasticities, showing GNP elasticity of total and
civilian expenditures. Both elasticities were
above unity through the 1960s, reflecting rising
expenditure to GNP ratios. However, elasticity
fell in recent decades. The economy's marginal
propensity to spend in the public sector
increased through the 1970s, but reversed
during the 1980s.
 Public Expenditure Growth:
Wagner’s Law
Growth by type of expenditure:
To explain the growth in the overall expenditure
share in GNP, it is helpful to consider a
breakdown by expenditure categories.
Table 1 - Growth of Government Expenditure in the
United States
Fig - US civilian and defense expenditures as percentage
of GNP call levels of government.
 Table 2
Expenditure Elasticities and propensities (All levels of Government)

By level of Government : As shown in lines 9 through

11 of table 1, the trend over the century was toward increased
expenditures centralization.
Public Expenditure Growth:
Wagner’s Law

The federal share in 1929 and the 1940s

increased significantly during the depression
decade, reaching above pre-World War II
levels. Since 1950, it has remained stable. The
rise in federal share was accompanied by a
decline in local and state share, but these ratios
overstate the shift towards centralization due to
intergovernmental grants' importance in the
1960s and 1970s.
 Public Expenditure Growth:
Wagner’s Law

Defense versus civilian Expenditures:

The civilian expenditure ratio has increased faster
than the defense ratio over the past 90 years, but
both have risen substantially. The pattern by sub-
periods differs, with the civilian ratio explaining
almost the entire increase from 1890 to 1940. From
1940 to 1950, the defense ratio rose sharply, while
the civilian ratio showed little change. Despite these
comparisons, expenditure growth has not been
primarily driven by rising defense expenditures, with
the civilian expenditure ratio being the driving force.
 Public Expenditure Growth:
Wagner’s Law

Purchase versus Transfer payments:

Table 1 displays US expenditure growth,
dividing purchases & transfers. Both contribute
to the increase, with transfer share increasing
since the 1930s. Transfer payments account for
three-quarters of civilian expenditure growth.
The purchase ratio remained stable in the
1960s, but declined in the 1970s.
The Peacock-Wiseman Hypothesis
Peacock and Wiseman conducted a new study based
on Wagner's Law. They studied the public expenditure
from 1891 to 1955 in UK. They found out that
Wagner's Law is still valid.

Peacock and Wiseman further stated that :

1. "The rise in public expenditure greatly depends on

revenue collection. Over the years, economic
development results in substantial revenue to the
governments, this enabled to increase public
expenditure".
The Peacock-Wiseman Hypothesis
2. There exists a big gap between the expectations of the
people about public expenditure and the tolerance level
of taxation. Therefore, governments cannot ignore the
demands made by people regarding various services,
especially, when the revenue collection is increasing at
constant rate of taxation.

3. They further stated that during the times of war, the

government further increases the tax rates, and enlarges
the tax structure to generate more funds to meet the
increase in defence expenditure. After the war, the new
tax rates and tax structures may remain the same, as
people get used to them. Therefore, the increase in
revenue results in rise in government expenditure.
The Peacock-Wiseman Hypothesis
Peacock and Wiseman's study of public expenditure in
Great Britain from 1890-1955 reveals a step-like, jerk-
like increase in expenditure, indicating social
disturbances and the need for increased spending due
to insufficient existing revenue.
However, the approach of the hypothesis is made
of three separate concepts:
1. Displacement effect

2. Inspection effect

3. Concentration effect
The Peacock-Wiseman Hypothesis
Peacock and Wiseman observed that the public sector
growth in Great Britain follows a discrete, step-like
pattern over seven decades. Government fiscal
activities increase during major social disturbances,
creating a 'displacement effect'. This leads to a higher
level of tax tolerance, causing society to support
higher public expenditure and revenue. This stabilizes
public expenditure and revenue, and a displacement
effect occurs, preventing a strong motivation to return
to lower taxation levels. Instead, higher government
revenues are used to support a permanent increase in
public sector allocation.
The Peacock-Wiseman Hypothesis

The displacement effect does not require increased

expenditure growth due to social disturbances.
Instead, increased expenditures are partly due to
disturbances, while other expenditures involve
government expansion into new areas. This
phenomenon is called the inspection effect.
The Peacock-Wiseman Hypothesis

Peacock and Wiseman's concentration effect suggests

that central government economic activity grows
faster than state and local governments during
economic growth. This phenomenon is closely related
to the country's political structure. The Peacock-
Wiseman thesis is more convincing than Wagner's
hypothesis, as it highlights the growth pattern in
industrial set up, natural advancements, structural
changes, urbanization, population expansion, civil
rights awareness, and state government duties.
 Effects of Public Expenditure
Dalton's View suggests that the effects of
public expenditure can be summarized as
follows:
I. Effects of Public Expenditure on Production
II. Effects of Public Expenditure on Distribution
III. Effects of Public Expenditure on Economic
Stability
IV. Effects of Public Expenditure on Economic
Growth
 Effects of Public Expenditure
I. Effects of Public Expenditure on
Production
Public expenditure affects a country's
production pattern and volume. It influences
efficiency, physical and mental, and
encourages production efforts. The provision
of basic services and facilities increases
production in both public and private sectors.
Public expenditure policies can assist
individual firms and change production
patterns.
 Effects of Public Expenditure
Dalton posits that the impact of public expenditure
is influenced by three key factors.
a) Ability to work, save and invest: Public expenditure
significantly impacts the ability to work, save, and
invest. Increased spending on education, medical
services, housing, transportation, and recreational
facilities boosts efficiency, promotes production,
and increases national income. Public expenditure
also boosts purchasing power, creates confidence,
encourages investment in productive channels, and
improves mental standard, enabling better
utilization of people's abilities. This leads to
increased income and saving.
 Effects of Public Expenditure
b) Willingness to work, save and interest: Public
expenditure significantly impacts workers'
willingness to work, save, and invest,
impacting both present and future outcomes.
Planning public expenditure to be more
beneficial during work and secure future
investments can increase worker willingness.
Conditional benefits can increase work desire,
while systematically implementing public
expenditure can provide social security, offer
opportunities, and bridge the income gap
between the rich and poor.
 Effects of Public Expenditure
c. Diversion of Economic Resources: Public expenditure,
which diverts economic resources, significantly
impacts production patterns, influencing the allocation
of resources to regions or industries, requiring
government selection for maximum national
production and social advantage.
“Whereas taxation, taken alone, may check
production, public expenditure, taken alone, should
almost certainly increase it. Expenditure on police,
and armed forces, if not overdone and on the
other apparatus of order and security, creates the
conditions under which alone organized production
can take place at all.”
Prof. Dalton
 Effects of Public Expenditure
II. Effects of Public Expenditure on
Distribution
Public expenditure is a powerful tool for the
govt to ensure an equitable distribution of
income and wealth, particularly in backward
countries. It influences national production
and employment composition and can be
achieved through taxation and public
expenditure. Governments consider which
socio-economic group should be benefited,
aiming to ensure the welfare of the poor and
vice versa.
 Effects of Public Expenditure
Effects of Progressive, Proportional and Regressive
Expenditure
“A grant is regressive, if the smaller the recipient’s
income, the smaller the proportionate addition may
be made by the grant; progressive if, the smaller
the recipients income, the larger the proportionate
addition; proportional if whatever the size of the
recipient income, the proportionate addition is the
same.”
Prof. Dalton

Public expenditure, regressive or progressive, aims to reduce

income disparities and maximize social welfare, benefiting
higher-income groups and reducing income inequality
more significantly for lower-income groups.
 Effects of Public Expenditure
“The principle of minimum sacrifice in the
distribution of taxation runs parallel to the
principle of maximum benefit in the distribution
of grants …a rough approximation to the latter
principle would have be a grant system which
brought all income below a certain level up to
that level and added nothing to any income
above that level”
Prof. Dalton
“If the prospect of grant causes a person to work
and save less than he would otherwise have
done, the effect of the grant increasing his
income will be diminished; in the opposite case
its effects will be increased.”
 Effects of Public Expenditure
III. Effects of Public Expenditure on Economic
Stability
Economic instability in capitalistic economies,
characterized by output & price instability, is a common
characteristic resulting in business fluctuations. Post-
Great Depression, cyclical measures were adopted to
address this issue. Economic instability leads to
departure from full employment at stable prices.

Unemployment
Unemployment, a key economic disorder, can be
cyclical, frictional, or seasonal. It causes misery,
suffering & moral degradation. The state is responsible
for achieving and maintaining full employment in the
 Effects of Public Expenditure
General Level of Economic Activity
Keynesian theory of employment explains a
country's economic activity through income
usage for consumption or savings. Keynes and
his followers recommend fiscal and monetary
measures, including public expenditure, to
compensate for deficits. Government spending
is raised through public expenditure or
compensatory finance. During boom periods,
excessive aggregate demand is curbed by
reducing public expenditure and maintaining
taxation and borrowings.
 Effects of Public Expenditure
Public Expenditure during Inflation
Public spending can help reduce inflationary conditions by
focusing on projects that increase production volume
within a short time. This can include minor irrigation
projects, fertilizer provision to agriculturists, and industrial
expansion facilities for industrial units.
Public Expenditure during Depression
Depression occurs when saving exceeds investment, lowering
aggregate effective demand. This leads to losses for
businesses and reduced confidence. Government
spending on public works projects creates employment
and stimulates a chain reaction, increasing demand for
commodities and boosting production volume, resulting in
more employment and increased aggregate effective
demand.
 Effects of Public Expenditure
IV. Effects of Public Expenditure on Economic Growth
Public expenditure plays a crucial role in reducing
regional disparities, developing social overheads,
infrastructure, education, and research in developing
economies. In advanced economies, it stimulates
economic growth, stimulates saving, and accumulates
capital. Subsidies and subsidies can help increase
agricultural production, reduce regional disparities, and
stimulate private initiatives.
“ In the development programmes, all sectors of
the economy should grow simultaneously so as to
keep a proper balance between industry and
agriculture and between production for home
consumption and production for export.”
Prof. W.A. Lewis
Pattern of Public Expenditure
The pattern of public expenditure refers to the
distribution and allocation of government funds
across different sectors, programs, and
activities within an economy. It provides
valuable insights into the government's
economic and social priorities, as well as its
strategies for promoting overall development.
This allocation is a reflection of the
government's role in influencing economic
growth, addressing societal needs, and
achieving various objectives.
 Pattern of Public Expenditure
The composition of public expenditure encompasses a
wide range of sectors, including but not limited to:
1. Social Welfare: Funds allocated to programs that
support the well-being of citizens, such as
healthcare, education, housing, and social
assistance. These investments contribute to human
capital development and poverty reduction.

2. Infrastructure Development: Expenditure

directed towards building and maintaining physical
infrastructure like roads, bridges, public
transportation, and utilities. Infrastructure spending
can have a direct impact on economic productivity
 Pattern of Public Expenditure
3. Defense and Security: Budgetary provisions
for national defense, security agencies, and
maintaining law and order. This category
includes military expenditures, intelligence
agencies, and police forces.

4. Public Administration: Funds dedicated to

running government institutions, paying
salaries of civil servants, and supporting
administrative functions at various levels of
government.
 Pattern of Public Expenditure
5. Economic Development: Expenditure aimed
at fostering economic growth through
investment in sectors like industry, agriculture,
and technology. This can include subsidies,
grants, and incentives to stimulate economic
activities.

6. Environmental Conservation: Allocation for

initiatives focused on environmental protection,
sustainable development, and addressing
climate change. This can involve funding for
conservation projects, renewable energy, and
 Pattern of Public Expenditure
7. Research and Innovation: Investment in
research, development, and innovation to
drive technological advancement and foster
competitiveness in various sectors of the
economy.

8. Debt Servicing: Funds allocated to paying

off national debt obligations, including interest
payments and principal repayment.
Pattern of Public Expenditure
The pattern of public expenditure is influenced
by a variety of factors, including government
priorities, economic conditions, social needs,
political considerations, and the availability of
resources. Governments often seek to strike a
balance between short-term requirements and
long-term goals, aiming to maximize societal
welfare and economic growth.
Analyzing public expenditure patterns is crucial
for evaluating government policies' alignment,
transparency & accountability, and adjusting
allocations as economic & social circumstances
Development Expenditure Unit
Development Expenditure Unit (DEU): A
Development Expenditure Unit (DEU) is a specialized
division within a government's financial structure that
is dedicated to overseeing and managing development
expenditures. Development expenditures are funds
allocated to projects, programs, and initiatives that
promote economic growth, social progress, and overall
development within a country. The primary function of
a Development Expenditure Unit is to ensure that
these funds are efficiently and effectively utilized to
achieve the intended developmental goals.
 Development Expenditure Unit
Here are some key points about a DEU:
1. Objective: The main objective of a DEU is to
facilitate the implementation of development projects
and programs that contribute to the economic and
social advancement of the nation. These projects
might include infrastructure development, poverty
reduction programs, education initiatives, healthcare
improvements, & more.
2. Budget Allocation: The DEU plays a crucial role in
the allocation of funds for various development
projects. It assesses project proposals, allocates
budgets & monitors the utilization of funds to ensure
they are used in line with the established priorities.
 Development Expenditure Unit
3. Project Evaluation: The unit is responsible for evaluating
the feasibility and potential impact of proposed development
projects. This includes assessing the financial viability,
environmental sustainability, and social benefits of each
project.
4. Monitoring and Reporting: A DEU closely monitors the
progress of ongoing development projects to ensure they are
meeting their objectives and staying within budget. Regular
reporting to relevant government bodies and stakeholders is
a vital part of their role.
5. Coordination: The DEU often acts as a coordinating body,
bringing together various Govt departments, agencies &
external stakeholders involved in the execution of
development projects. This ensures smooth collaboration &
 Development Expenditure Unit
6. Transparency and Accountability: One of the key
responsibilities of a DEU is to ensure transparency and
accountability in the use of development funds. This
involves maintaining detailed records, conducting audits,
and addressing any irregularities or discrepancies.
7. Data Analysis: DEUs may analyze data related to
development expenditures to identify trends, assess the
impact of past projects, and make informed decisions
about future allocations.
8. Policy Alignment: The unit ensures that development
expenditures align with the government's broader
development policies and objectives. This helps to
achieve a coherent and holistic approach to national
 Development Expenditure Unit
9. Adaptation and Planning: DEUs need to be
flexible and adaptive to changing circumstances.
They often play a role in adjusting development plans
and priorities based on evolving economic, social,
and environmental factors.
10. Public Communication: Communicating the
progress, outcomes, and benefits of development
projects to the public is essential. The DEU may be
responsible for disseminating information about the
positive changes brought about by these initiatives.
Development Expenditure Unit

In summary, a Development Expenditure Unit is a

specialized entity that focuses on managing and
overseeing the allocation and utilization of funds for
development projects and programs. Its role is
crucial in ensuring that public resources are
effectively channeled towards achieving sustainable
economic growth and improving the quality of life for
citizens.
 Non-Development Expenditure Unit

A Non-Development Expenditure Unit (NDEU) is a

specialized division within a government's financial
structure that deals with non-development
expenditures. Non-development expenditures
encompass routine operational costs, administrative
expenses, debt servicing, and other recurring
financial commitments of the government that are
not directly related to developmental projects.
 Non-Development Expenditure Unit
Here are some key points about a NDEU:
1. Scope: The NDEU is responsible for managing and
overseeing the budgeting, allocation, and utilization
of funds for non-development expenditures. This
includes expenses related to the functioning of
government institutions, administrative activities,
debt payments, and other recurring financial
obligations.
2. Operational Costs: Non-development expenditures
cover day-to-day operational costs of government
bodies, such as salaries of civil servants, maintenance
of government buildings, office supplies, and utilities.
 Non-Development Expenditure Unit
3. Debt Servicing: The NDEU handles the repayment of
national debt, which includes both interest payments
and principal repayments on loans obtained by the
government.
4. Budget Allocation: The unit allocates funds for non-
development expenses in the government budget. It
ensures that there are sufficient funds to cover routine
obligations and that these obligations are met on time.
5. Financial Planning: The NDEU contributes to financial
planning by forecasting non-development expenditures
for the coming fiscal period. This helps in estimating the
financial resources required to meet various obligations.
 Non-Development Expenditure Unit
6. Monitoring and Control: The unit monitors the
utilization of funds allocated for non-development
purposes. This involves tracking expenditures,
managing cash flows, and ensuring that expenses are in
line with approved budgets.
7. Audit and Compliance: The NDEU works to maintain
financial transparency and compliance with financial
regulations. It ensures that financial records are
accurate, audited, and meet reporting standards.
8. Resource Allocation: Balancing non-development
expenditures with other financial priorities is a key task
of the NDEU. It aims to allocate resources in a manner
that supports both operational needs and
 Non-Development Expenditure Unit
9. Risk Management: The unit assesses financial risks
associated with non-development expenditures, such as
fluctuations in interest rates that could impact debt servicing
costs.
10. Efficiency Measures: The NDEU may identify opportunities
to enhance efficiency and reduce costs in non-development
spending, thereby contributing to better fiscal management.
11. Fiscal Sustainability: Effective management of non-
development expenditures is essential for maintaining fiscal
sustainability and preventing the accumulation of excessive
debt.
12. Policy Alignment: The NDEU ensures that non-
development expenditures are in alignment with broader
fiscal policies and government priorities.
Non-Development Expenditure Unit
In summary, a Non-Development Expenditure Unit
plays a vital role in managing the financial aspects of
routine operational costs, debt servicing, and other
recurring financial commitments of a government. By
efficiently managing non-development expenditures,
governments can maintain financial stability, allocate
resources effectively, and ensure the smooth
functioning of public institutions.