Issue of public fund mismanagement across the world

By Priya Chetty on May 9, 2024

Public fund mismanagement is a significant obstacle faced by nations worldwide, irrespective of their developmental status. This issue not only hinders the economic progress of a country but also poses formidable challenges to its overall development. Countries such as Uganda, Nigeria, Pakistan, and the Philippines are particularly susceptible to this phenomenon. This directly undermines their growth prospects. Somalia stands out as the most corrupt nation globally, owing to the unethical fiscal practices of its government. Similarly, North Korea and Afghanistan are also considered notorious for their high levels of corruption (Ranker Vote for Everything, 2017).

Types of corruption that lead to public fund mismanagement

According to Ghaffoori (2016), there are two types of corruption:

  1. spontaneous and,
  2. systemic.

Spontaneous corruption usually takes place in developed countries like the United States. In developed countries, spontaneous corruption controls the ethics in the public sector. On the other hand, systemic corruption is evident in specific communities, where individuals consistently engage in corrupt practices for personal gain (Transparency International, 2022).

There are other forms of corruption such as political, administrative and professional corruption that affect developing countries to a great extent. The most prevalent form is the misuse of official positions in which political parties adopt corrupt practices such as vote buying, bribery and illegal financing of political parties. On the other hand, administrative corruption such as those taking place in the court, hospitals and government offices affects the development of a country (India Study Channel, 2017).

Corruption results in inequality around the world as the poor become poorer and the rich become richer. Additionally, corruption in terms of providing substandard raw materials and exporting the same at high prices has also created gaps in exports. On top of that, people in power misuse laws to take control of government resources, which is another way corruption hurts everyone. This huge waste of funds could have been channelled for the well-being of poor people or any other development activities (State Capture, 2017).

Exploring the cause of public fund mismanagement

Mandl, Dierx and Ilzkovitz (2008) explained that regulatory framework, climate, economic development and socio-economic background have had a direct impact on the utilisation of public funds. It is because government administration allocates the resources with the technical efficiency so the output depends on the same. In this regard, poor regulatory policies and ineffective allocation of funds as well as poor functioning of the public administration are the main reasons behind the mismanagement of public funds. Thus, mismanagement of public funds results in an impoverished economy and lower standard of living standards.

Corruption and mismanagement of funds are adversely affected by both underdeveloped and developed economies. Several reasons lead to mismanagement, namely low funding and ineffective monitoring. There are plenty of investment options but the available fund is insufficient (Adedokun & Lecturer, 2017). Adedokun and the Lecturer (2017) explained that inadequate funding and the job history of employees with authority are some of the major causes of public fund mismanagement. The individual history of a person like high dependency on alcohol and association with those of higher status also has a role. People accept bribes for self-gain and these acts are supported by a lack of imposition of punishment due to the involvement of political parties.

Ololube (2016) suggested that mismanagement of funds occurred due to a lack of job opportunities resulting in them committing illegal acts and working for political parties for gains. On the other hand, Paul (2016) asserted that a lack of accountability and transparency system results in widespread mismanagement in developing countries such as Angola, Botswana, Nigeria etc. However strict policies and regulations are crucial to deal with corruption. Moreover, regulatory practices can be changed in order to address corruption (Ody, Griffin, Ferranti, Jacinto, & Warren, 2017).

Enablers and driving factors of public fund mismanagement

A weak accounting system enables mismanagement of public funds involving organised crime syndicates (Sandholtz & Koetzle, 2000). In Nigeria, most political parties and syndicates are strongly connected in a network. Bribing the relevant authorities ensures they achieve their aims. This also leads to blackmail and extortion. These issues affect the progress of both the public and the private sector in ensuring sustainable economic development (Asogva, Barungi, & Odhiambo, 2017).

Gupta and Abed (2002) argue that in India, fund mismanagement stems from inadequate financial institutions and their loan approval processes. They assert that priority is often given to individuals willing to offer bribes. Consequently, development aid and grants fail to be utilized efficiently for development initiatives, contributing to the ongoing problem of insufficient funds for the development of a nation.

Conversely, mismanagement occurs when the governments of developing countries favour the private sector by providing them with goods and services at discounted rates. While this practice may foster positive relationships, its adverse effects on national growth and development are evident due to the substantial misuse of funds (Feldstean, 1980).

Adverse effects of corruption on the socio-economic health of a country

Baghebo (2012) emphasized that public funds must be utilised in the right manner for improved economic growth. Asogva, Barungi and Odhiambo (2017) stated that effective and efficient public spending must be based on good fiscal discipline and structural reform agenda. They suggested that if public spending is managed effectively, then budget constraints can be managed. This determines the success of different industrial sectors and ensures consistent growth and development of the economy.

Due to the mismanagement of public funds, Nigeria was unable to maintain consistent growth of its economy. This led to an increase in poverty, poor education and healthcare-related problems (Ajefu, 2015). Productive investment is necessary for Nigeria, otherwise its dependency on foreign aid and grants will not end. In this regard, the management of the country can shed light on the distribution of the funds in the economy. This equal distribution of income or funds contributes towards the appropriate management of the resources.

The education sector in Nigeria, particularly primary and secondary education, as well as training and development facilities, have been adversely affected by the mismanagement of public funds (Birchler & Michaelowa, 2016). Lewis (2006) elucidated that this mismanagement also impacts public health, resulting in unequal distribution of funds and inadequate infrastructure. The author emphasized the crucial role of good governance in effective healthcare delivery, highlighting the need for government intervention in addressing issues such as information transparency, corruption, and absenteeism. Lewis underscored the importance of international development and global health initiatives targeting specific diseases affecting individuals. However, the author cautioned that without government action on these specific issues, the return on investment in healthcare would remain low.

Nigeria struggles to maintain its employment rate, while Kenya faced high youth unemployment rates in 2009, reaching 24% for youths aged 20 to 24 (Hope, 2014; Brookings, 2017). Additionally, Ghana experienced an increase in unemployment, rising to 5.77% in 2016 from 5.54% in 2015, with an average rate of 6.51% between 1991 and 2016 (Trading Economics, 2017). These trends suggest that mismanagement of funds has hindered significant improvements in many developing countries in Africa.

In this article, the causes and consequences of public fund mismanagement as highlighted by various authors and research studies are explored. Weak financial institutions, corruption, and favouritism towards the private sector were identified as key factors contributing to fund mismanagement in countries like India and Nigeria. The repercussions of mismanagement extend beyond economic sectors, affecting education, healthcare, and employment opportunities in nations across Africa. These insights underscore the critical need for effective governance and accountability measures to address the systemic challenges of fund mismanagement and promote sustainable development.

References

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  • Ajefu*, J. B. (2015). Impact of defence spending on economic growth in Africa: The Nigerian case. Journal of Developing Areas, 49(4), 227–244.
  • Asogva, R., Barungi, B., & Odhiambo,  ojijo. (2017). Nigeria | African Economic Outlook.
  • Baghebo, M. (2012). Effective Utilization Of Tax Revenue In Nigeria. International Journal of Academic Research in Business and Social Sciences, 2(7).
  • Birchler, K., & Michaelowa, K. (2016). Making aid work for education in developing countries: An analysis of aid effectiveness for primary education coverage and quality. International Journal of Educational Development, 48, 37–52. https://doi.org/10.1016/J.IJEDUDEV.2015.11.008
  • Brookings. (2017). State of Youth Unemployment in Kenya.
  • Feldstean, M. (1980). Tax Rules and the Mismanagement of Monetary Policy. Cambridge, MA. https://doi.org/10.3386/w0422
  • Ghaffoori, A. (2016). The Role of Accounting Reform in Deterring Corruption Practices in the Public Sector: A Case Study in Kurdistan Region. Journal of Business & Financial Affairs, 05(04), 1–15. https://doi.org/10.4172/2167-0234.1000229
  • Gupta, S., & Abed, G. T. (2002). Governance, Corruption, and Economic Performance – Mr. Sanjeev Gupta, Mr. George T. Abed – Google Books. International Monetary Fund.
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Priya is the co-founder and Managing Partner of Project Guru, a research and analytics firm based in Gurgaon. She is responsible for the human resource planning and operations functions. Her expertise in analytics has been used in a number of service-based industries like education and financial services.

Her foundational educational is from St. Xaviers High School (Mumbai). She also holds MBA degree in Marketing and Finance from the Indian Institute of Planning and Management, Delhi (2008).

Some of the notable projects she has worked on include:

  • Using systems thinking to improve sustainability in operations: A study carried out in Malaysia in partnership with Universiti Kuala Lumpur.
  • Assessing customer satisfaction with in-house doctors of Jiva Ayurveda (a project executed for the company)
  • Predicting the potential impact of green hydrogen microgirds (A project executed for the Government of South Africa)

She is a key contributor to the in-house research platform Knowledge Tank.

She currently holds over 300 citations from her contributions to the platform.

She has also been a guest speaker at various institutes such as JIMS (Delhi), BPIT (Delhi), and SVU (Tirupati).

 

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