A budget outlines the origin and the application of public resources and for this reason, it plays a central role in the government processes, economic, political, legal and administrative functions of a country. Budgeting is responsible for shaping the macroeconomic status of a country, reflect the political power of the actors who are involved in different stages of the budgeting process, determine which projects get funded with how much and at what level and come up with proper budgetary reforms of both the technical and political budgeting.
In this case, monetary control is necessary for a country to achieve the desired level of growth and stability of its economy. It is the responsibility of central banks to conduct monetary policies for the purposes of monetary control. A monetary policy can be defined as a deliberate effort by the Central Bank to influence the economic activities of a country through variation of the money supply, limited control of the amount of credit available and the use of interest rates which are consistent with political objectives of the country.
Some of the objectives achieved by the monetary policy include stabilization of the prices of goods and services, stability of exchange rates, availability of employment and maximization of the outputs as well as high rates of economic growth. Most monetary authorities employ operations in the open markets, bank rate regulation policies and credit control policies to control monetary values and achieve the above named objectives. The federal reserve Banks in U. S for instance uses credit control policies to increase or decrease the amount of money and credit present in the U. S economy at any given financial year.
If the monetary value increases, the credit control is said to be on the loose end and to control this, the interests rates for the financial institutions tend to drop, the amount of money spent by businesses and individual consumers increase and the employment opportunities also increase as well. However, if too much money is located to any one sector of the economy when budgeting, it might lead to inflation and a decline in the monetary value of the dollar might result.
On the other hand, if too little money is available in the economy, levels of unemployment in the country might increase. An example of how monetary policy and credit controls are applied in public budgeting was seen back in the early 1970s where the Federal Reserve Banks in the U. S facilitated rapid credit expansion to combat unemployment in the country. However, this move led to inflation of the economy forcing the Central Bank to implement a monetary policy in 1979 to slow down the high inflation rates and regulate its public budget plan (Carrigan, 2004).
From a different perspective, money can be used to estimate the amount of credit in a country. For instance, some contemporary research findings indicate that the U. S GDP in the year 2006 was around 12. 98 trillion dollars and such values are very important in the process of public budgeting to ensure that money is available to every one in the community. Apart from being affected by monetary and credit control policies, public budgeting is an inherently political process. Political governance and politics related to budgeting affect the operations and reforms of public financial budgeting systems.
Several studies carried out on the Ghanaians, Mozambique and Malawian political systems show a significant gap between the formal and informal systems budgeting systems with practices such as clientelism, rent seeking and patronage which lead to dysfunctions and distortions leading to an interference with the public budgeting procedures (Donald, 2002). Many research findings have indicated that the budget making process is more of a political process than a technical one. In this case, it is not possible to separate any reforms made on a technical budget from the political environment on which they are embedded.
Therefore, for any reforms on a public budget to be effective, they have to be technically viable, administratively sound and politically feasible. Power politics in budgeting are responsible for shaping the rules of the game including ownership, time schedules, sequence of reforms and a review of the governments commitment to such reforms. Budget politics offer as many challenges as the opportunities since power politics in itself is not only a mitigation of risks but is also an opportunity to seize up the economy of a country.
Understanding the politics of budgets thus facilitates effective implementation of reforms and it also helps to identify and support change in the public financial management. According to the Journal of Association Budgeting and Financial Management, understanding the relationship between power politics and budgeting helps a nation to understand and appreciate the institutional factors which affect the proper functioning of budgetary reforms.
In addition, good fiscal governance helps to identify factors which might trigger pro-poor changes, streamline the checks and balances and aid proper budgetary reforms. Political governance of a country affects the functioning of all the financial systems and the sustainability of the budget reforms (Cargill and Garcia, 2005). For instance, studies of the power politics in the U. S have shown that the political economic factors have a significant effect on the trajectory change as well as the credibility of its federal government commitment to budgetary reforms.
These studies also suggest that the demand for better political governance and financial accountability is a major driver for budgetary reforms in the public budgeting systems. In addition, the political power of a state influences public budgeting in the redistribution of wealth and allocation of resources depending on the priorities. Public budgeting as a political process reflects a public consensus, a relative power and financial accountability of the whole process.
Conclusion. From the discussion above, it is clear that public budgeting is very important for the proper functioning of all the sectors of the economy in a country. As indicated above, most budgeting processes have shown a political inclination rather than a technical one. The political stability of a country affects its economic stability, the monetary value of its currency and the availability of credit facilities both in its local financial institutions as well as the international financial institutions.
The monetary policies and the credit controls by the central banks influence the amount of money available for public budgeting. On the other hand, the political power of a state affects the implementation of budgetary reforms which are important for budgeting in any country. It can thus be concluded that, there is a very close relationship between monetary and credit controls, budgeting and power politics in the process of public budgeting.