Outline the benefits of capital budgeting in public sector.

Advanced Financial Management Block Revision Mock Exams

The Capital Budgeting Process

A number of terms are used interchangeably to refer to capital budgeting in public sector, e.g. public work planning, capital improvement planning, capital facility planning or capital outlay planning.

Capital Budget in public sector refer to the legislative plan for proposed capital outlay and the means of financing them for the coming fiscal period. The capital planning and programming role of the chief executive guides the capital budgeting and programming process and makes recommendations to the legislature.

The guidelines for preparing and submitting the capital plan are determined parliament which establishes the time frame for the program, project or activities, the extent of the citizen participation and the administrative responsibilities for the capital planning process. The authority to analyse the financial implication and impact of the capital program on the operating budget and to make recommendation on the financing approaches to assign to the department (Ministry of Finance) where a planning commission exists.

Benefits of Capital Budgeting in Public Sector

A number of important results flow from an effective plan and executed capital improvement program. These include:

  • It forces communities to examine their goals and needs capabilities
  • It promotes greater efficiency in the use of tax resources.
  • It provides an important guide in and the growth and development of the community.
  • It encourages government for public organizations to improve their administrative systems.
  • It is an important means for promoting Regional Corporation
  • It facilitates and promotes sound financial management.
  • It offers an effective way to replace or repair capital facilities.
  • It enhances the government or the organisation‟s opportunity to participate because of the many programs that the government maintain to aid in the planning and construction of infrastructure.
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