IMPLICATION OF PUBLIC PROCUREMENT SYSTEM TO THE

ECONMIC GROWTH AND DECELOPMENT OF A COUNTRY

Economists distinguish between growth, by which they basically mean more of
the same—more goods and services; and development, growth with structural and
technological change.
An important feature of development is seen when goods and services enter into
markets. For an example, when people have meals away from home and pay for
restaurant services, a restaurant sector grows up which enters into what is measured as
the Gross Domestic Product (GDP).
GDP is the total market value of a country's output of goods and services that are
exchanged for money or traded in a market system over a certain period (usually a
year), regardless of who owns the productive assets. GDP measures the value of all
economic activity within a country’s borders. For example, the output of Indian
owned companies based in Sri Lanka is considered part of Sri Lanka’s GDP, not the
India.
GDP is equal to private consumption, plus investment, plus government
expenditure, plus some other factors such as changes in stocks, plus exports minus
imports. These are known as the components of GDP.
Economic Growth Rate is the rate at which gross domestic product (GDP) is
increasing (positive growth) or decreasing (negative growth). If GDP grows at a
higher rate than the population, then living standards are said to be rising. If the
population is growing at a higher rate than GDP, living standards are said to be
falling.
As explained in an above paragraph, government expenditure is a major
component of GDP. Also it is a positive component, which means an increase in
government expenditure results in an increase in GDP. That in turn results in an
increase in economic growth of a country, provided that other factors are unchanged.
The government is the largest service provider in the country. So the increase in
government expenditure should results in increase in the quality of services which
government provides, such as health, transport, utilities, etc. The question is whether
this is really happening?
In theory, if the government spends more than previous year, it will increase the
GDP of the country in this year. That means there is a positive economic growth in

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the country. The public should feel if there is economic growth, because they get
quality service than previously. There should be reduction in unemployment, because
government has created more job opportunities with what they have procured this
year. There should be lower prices in commodities, i.e. lower inflation rate with the
increase in production. There should be lesser and lesser poor people in the country.
But it to happen, the government should wisely plan and spent with the aim of
ultimate improvement of their services.
It is true some of this government expenditure is used for paying salaries and also
used for other similar recurrent expenditure. But major portion of government
expenditure is used for procurement of works, goods and services by public
institutions. That is almost all capital expenditure, which is used for procurements in
government institutions. These can be for low value items such as pens and paper to
new works such as super highways or complex items such as high-tech computer
systems. Each year these procurements absorb massive amounts of public funds
(approximately 20 % of GDP). And the most important thing is each year the amount
is increasing rapidly.
To avoid ad-hoc, unplanned procurement and malpractices in procurement to be
happened, there should be a proper planning from the beginning and better controlling
up to end.
We should begin from the start. The most important thing is a country should have
a vision. That should be a long term vision, showing the position of the country to be
after another 20-25 years. The best example is the Singapore. They had a long term
vision and the Prime Minister of Singapore led the country towards the target. In other
word, it is very similar to captaining a ship in the middle of the sea. The captain of the
ship should exactly know the next port of call, and using any kind of method he
should direct the ship along that way. Otherwise he can endlessly float in the sea,
going here and there, not reaching the target; the most important thing is without
sinking.
From this vision, short term missions should be developed. That should for a
period of at least for up to 5 years. With this mission in hand, each ministry or
department can develop their mission targeting country objectives. Strategy can be
formulated only after the objectives of each ministry or department to be
accomplished have been determined. Thus, national objectives are the irreducible

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elements of national strategy. Objectives and targets of each ministry or department
should be well fit in to the overall national objectives.
To achieve targets of each ministry or departments, they should acquire resources.
Most important is the human resources, which is not the concern in this assignment.
But other resources such as buildings, machinery and other goods should be acquired
through procurement.
So if we know our ultimate targets, we can prepare a strategic plan which includes
the targets in quantifiable form and dates on which we should achieve these targets.
With that in mind, we have to prepare resource allocation plan which needed for
fulfilling above targets.
After preparation of resource allocation plan, we now have a clear idea about what
we should have to reach as our final target. With that in mind, now we can prepare a
Master Procurement Plan and Procurement Time Schedule. According to the
quantities and complexity of items to be procured, we can select a suitable method to
be adopted for procurement. But these methods should be transparent and possibly
promote domestic industry and employment.
Works, goods or services procured to fit with MPP will be in right quantity,
because in advance we know the exact requirement to be procured. It will be at right
price and time. Because we do not have to unnecessarily do procurement at the last
minute to avoid funds going back to the treasury. It will be at right place, because
each procurement has to be fitted in to the macro level requirement of the country
fulfilling the social needs of citizens. There will not be any room for unnecessary
procurement which leads to increase in government expenditure causing increase in
GDP and then in Economic Growth, but without any real outcome. The works, goods
and services procured following proper guidelines in turn help to increase the
Economic Growth which will have a real feeling to the ordinary citizens.
There is another side also about the relationship between procurement and
economic growth. With proper procurement in government, the capacity for
production will be increased, due to new infrastructure facilities so acquired. If a
country produces more and more, the possibility for export will be more, and possible
imports will be less. This also helps to increase the GDP, and then the economic
growth.

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 Therefore public procurement system and process of a country has real
implication in economic growth and development of a country, if it is well fitted with
country’s national vision, mission and objectives.

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