Public Expenditure Management,

Public Expenditure Growth,

& Transfers and Decentralization

(MK. Ekonomi Publik &

Ekonomi Managerial)
Dr. Purwanto, SE, MSc

Sept 2022
Literatur (klasik)
J. Edgardo Campos; What is Public Expenditure Management (PEM)?, The Governance Brief, ADB
Quarterly Publication, The Governance Unit Strategy and Policy Department Asian
Development Bank Issue 1-2001
Allen Schick; A Contemporary Approach to Public Expenditure Management, World Bank Institute,
1999
Schiavo-Campo, Salvatore and Daniel Tomasi, “Overview of Public Expenditure Management”,
Chapter 1 in Managing Government Expenditure, Asian Development Bank, 1999, Manila,
Philippines.
The World Bank, “Institutional Arrangements for Better Budgetary Outcomes,” Chapter 2 in
Public Expenditure Management Handbook, 1998, Washington, D.C

2
Beda




Private,

?
Public,

Government (Central & Sub National)

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 What is Public Expenditure Management
(PEM)?
• Public Expenditure Management (PEM) differs from conventional budgeting (CB) in a
number of ways.
•First, PEM focuses on outcomes and sees expenditures as a means to produce outputs
which are needed to achieve desired outcomes.
•CB on the other hand focuses narrowly on expenditures on inputs. It preoccupies
government
tangential agencies
regard for with
the minute
actual details
outcomes of line
that item
budgets expenditures
are supposed with
to only
promote
and support.
•Secondly, in emphasizing outcomes, PEM highlights the importance of having the right
processes, i.e. those that lead to desired outcomes.
•CB is “legalistic” in its approach. It seeks to ascertain that agency budgets have
been prepared
procedures. Fromand implemented
this in
perspective, aaccordance
good budgetwith
is prescribed
one which rules
follows and
rules and
procedures accordingly.
•In contrast, in PEM, a good budget is one that produces outputs that lead to
improvements
procedures in
leads desired
to bad outcomes.
outcomes If
then the proper
from a implementation
PEM perspective, of
the rules
rules and
and
procedures are considered flawed and should be reformed.
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 What is Public Expenditure Management (PEM)?
• Third,
•under PEM, a balance is struck between the autonomy/flexibility that
must necessarily be given to line agencies for them to produce the
outputs needed to achieve the desired outcomes and the corresponding
accountability of the agencies for producing those outputs.
•Under CB, discussions between the budget agency (which in most
countries is the Ministry of Finance) and the line agencies focus on the
allocation of budgets to line (input) items and correspondingly limits the
accountability of agencies to the proper disposition of funds in
accordance with the agreed upon allocations. Consequently, the
accountability of line agencies is diluted.
•Even if a line agency fails to meet its mandate, provided it stuck to the agreed
upon allocations, it is generally not held accountable for the failure
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What is Public Expenditure Management (PEM)?
• In1.general, PEM tends to promote
aggregate fiscal discipline,
the achievement of three outcomes:
2. allocative efficiency, and
3. operational efficiency.
1. Aggregate
•the
fiscal discipline:
alignmentlevelof ofpublic

expenditures with total revenues (domestic revenues plus a
sustainable
•itwhat foreign borrowing);
means keeping government
you can afford. spending within sustainable limits, don’t spend more than
2. Allocative
•the
efficiency:
consonance

of programs
budgetaryandallocations with strategic priorities: are budgetary resources
being allocated to activities that promote the strategic priorities of the
•country?
Is the government spending money on the “right” things?
3. Operational efficiency:
•refers to the provision of public services at a reasonable quality and cost.
•is the country getting the best buy for its money.
The achievement of these outcomes is plagued by complex, underlying problems.
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 Aggregate Fiscal Discipline and the Tragedy of the Commons
There is
difficult a
to fundamental
achieve “the problem
tragedy that
of makes
the commons”Aggregat
or Fiscal
the Discipline
common pool
problem
• The annual budget is somewhat like the common pool of fish in the river.
•since
Eachhisclaimant
or her to the
demand budget
is such considers
a small the budget
proportion ofas a
the “free”
total resource
budget
and therefore will not impose much of a loss to the total.
But, of course, if every claimant
demands will far exceed what is available. behaved this way, the aggregate of their
Hence,
claimants absent
to the any constraint,
budget is meeting
likely to the
result in demands
large, of disparate
unsustainable deficits
that translate
inflation, high into an
interest unstable
rates, macroeconomic
burgeoning current environment
account — high
deficits – all of
which
poverty will necessarily retard economic growth and efforts to reduce

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Allocative Efficiency, Preference Revelation, and Cost
Revelation
• Technically this involves making calculations at the margin so that “the last dollar spent
on each program yields the same net benefit to society.”
• More simply, it means the government spends the money on the “right” things.
• But what is “right” depends on (a) the priorities of society and (b) the cost of programs
and activities needed to meet those priorities.
• A program may be relatively inexpensive but does not fall in any priority area.
• Or, a program may be in a priority area but cost a lot more than another program in
some other priority area.
In either case, the program is “not right.”

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Public Expenditure Growth

9
10
11
Public Spending (% of GDP), 1870–2020

12
General government final consumption expenditure (% of GDP) - World,
OECD members, Low & middle income, Upper middle income, Indonesia

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General government final consumption expenditure (constant
2015 US$)
USA

Germany

France India
UK Indonesia

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General government final consumption expenditure (constant
2015 US$) Germany

UK
India

France
Thailand
Philippines
Malaysia

15
General government final consumption expenditure (constant
2015 US$)
India

Thailand
Philippines
Malaysia

16
General government final consumption expenditure (constant
LCU)

LCU: local currency 17

unit
General government final consumption expenditure (annual % growth) –

Indonesia, World, OECD members

18
Government expenditure on education, total (% of GDP) -
Indonesia, World, OECD members, Middle income, Low income

19
Government expenditure on education, total (% of government
expenditure) - Indonesia, World, OECD members, Middle income, Low
income

20
Subsidies and other transfers (% of expense) - Indonesia, World,
OECD members, Middle income

21
Tax revenue (% of GDP) - World, OECD members, Low & middle income, Upper
middle income, Indonesia

22
General Government Debt, Percent of GDP

Indonesia

https://www.imf.org/external/datamapper/GG_DEBT_GDP@GDD/IDN/IND/CHN/MYS/PHL/THA?
year=2020 23
General Government Debt, Percent of GDP

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General Government Debt, Percent of GDP

25
Government debt as a share of gross domestic product in G20 countries in
2021 and projections for 2027

Published by Statista Research Department, Aug 5, 2022

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Lesson learnt
Kemampuan
•dan pinjaman spending
(pembiayaan tergantung
defisit), kemampuan
dan menghimpun
dipengaruhi oleh tax
pertumbuhan pendapatan domestic (GDP)
• Di• Indonesia,
aggregate fiscal discipline dijaga dengan membatasi deficit (total
pendapatan – total belanja) dibatasi maksimal 3% dari PDB, dan total
hutang pemerintah
Keuangan Negara) maksimal 60% dari PDB (UU 17 tahun 2003 ttg
•dan
Untuksiklus
menjaga Allocative
anggaran untuk efficiency,
memilih danIndonesia memiliki
menentukan manasystem/mekanisme
yang prioritas,
sejak perumusan di Pemerintah s/d persetujuan dari parlemen
•jumlah
Untuk memenuhi prinsip Operational efficiency, ada
program dan output dan standar biaya (unit cost) pembatasan terhadap

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Selesai

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Domestic general government health expenditure (% of GDP) - Indonesia,
World, OECD members, Middle income, Low income

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Domestic general government health expenditure (% of general
government

expenditure)

World Health Organization Global Health Expenditure database ( 

apps.who.int/nha/database ). The data was retrieved on January 30, 2022.
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