Public Financial Management Add Value
Does public financial management add value to the actions of the corporate financial manager with respect to the public-private partnership?
To identify whether public financial management adds value to the actions of the corporate financial manager with respect to the public-private partnership (PPP) or not, we have to know about core functions of public financial management and how it works, functions of a corporate financial manager and mechanism of public-private partnership.
Basically public financial management responsible for managing funds used to provide public services (infrastructural development, power, and energy, education, water supply, sewage, national security, healthcare, etc.) to different public sectors. The main objective is to ensure proper utilization of financial resources or funds so that effective public services can be ensured. Public financial management also takes care of the formulation of fiscal policy and developing a regulatory framework of financial resources of the country.
The finance ministry of a country is responsible to budget its annual sources of revenues and expenditure and also how these revenues will be collected through taxes, fees, fines, VAT, etc. Two types of a budget are being prepared one is expenditure budget and the other is the development budget. The finance minister decides the allocation of resources according to the financial plan and requirement to the different sectors.
Here in public financial management, two important things are present which are not available for the private sector. These are:
- Public accountability and others are The balance of public goods with the requirements.
On the other hand, the corporate financial manager is mainly responsible for the management of financial resources of the corporation to maximize the value of the company and shareholders’ wealth. Also, it is required to manage short-term money requirement through working capital management and long-term funds requirement through long-term sources or from optimal sources. To do this corporate financial managers make a decision about the capital structure of the company, capital budgeting, and working capital management.
The public-private partnership is an agreement between a public sector that is a government with the private sector that is a corporation to ensure the effective use of resources of government and corporations so that there is to have operational efficiency and cost-effectiveness. Both parties get to benefit from this type of agreement. Now because of the failure of the public sector more public-private partnerships are now seen in recent years. The actual reason for this type of partnership is to create value for both parties through the optimal use of financial and physical resources.
In Bangladesh now there are 42 projects are approved and make an agreement of public-private partnership for the purpose of ensuring proper use of resources and efficient services.
Now come to the main point of adding value by the public financial management to the action of corporate finance manager in respect of PPP.
From my point of view I think it is obvious that public financial management adds value to the action of corporate finance manager through the following ways:
- First of all corporate financial managers have to manage their financial resources by considering the financial policies taken by the government or public financial manager. In some cases corporate have to do business in an economy that is ruled by the public sector then it is required to follow the rules and regulations imposed by the government.
- If the public finance manager thinks that it is appropriate to make an agreement to form a PPP then corporate can take the opportunity because corporate has skilled human resources and expertise which is absent in the government human resource. By accepting this opportunity private sector can generate huge revenues and make it a profitable sector.
Let consider an example of PPP
In Bangladesh, several projects are on hand which is under the public-private partnership. Jatrabari Flyover project is one of these until now which is a successful project. The public sector can do this project alone but it was under PPP because of the benefits of efficiency in operations, less time consuming, more quality service and make the project a success.
Private showed their interest because of their larger financial benefit and earn a reputation in the construction sector.
In this example, the public sector provides its resources to the private sector and the corporate financial manager manages these resources in accordance with the agreement of public-private partnership. So we can say that public financial management adds value to the actions of the corporate financial manager.