A vital part of any government’s operations is how it handles financial matters. From budgeting to taxation to interest rates, a government’s financial policy drives its economy and affects the lives of every one of its citizens. While the head of a government, be that a president, prime minister, or other official, is ultimately responsible for that government’s economic strategy, specific policies are overseen by other individuals, often called secretaries or ministers. A country’s minister of finance has the duty of formulating and directing the financial policies of a nation.
The Duties of a Finance Minister
The finance minister is primarily responsible for a nation’s fiscal policy. This includes, but is not limited to, management of the nation’s budget, taxation policy, and domestic and international financial issues. In the United States, the position is called the Secretary of the Treasury, while in the United Kingdom it is the Chancellor of the Exchequer.
Managing a nation’s budget is a major responsibility, as this sets the spending limits of the government and plays a major role in the amount of money that various government programs and services will receive. The budget also directly affects taxation. How much the government has to spend depends on the revenue it receives from taxes—and of course, raising or lowering taxes impacts individuals, businesses, and entire communities.
A finance minister acts as a chief financial officer of the government. The head of government relies on the advice of the finance minister in most economic matters, making this position an extremely powerful and influential one. The more involved the government is in the private sector, the greater the power of the position. The finance minister’s power is also greater in governments that have large social welfare programs, like Social Security in the United States. These programs take up a large percentage of the government’s budget.
The management of the public debt is another important responsibility of a finance minister. The decision to borrow monies from outside sources can be a major factor in the future economic health of the nation. Finance ministers also set inflationary targets and may work to maintain a low unemployment rate. In some countries, they also control the interest rate, though in other countries, like U.S., that is the responsibility of the central bank.
Other Functions of Finance Ministers
While finance ministers often have specific duties assigned by the government’s constitution, they also influence other areas outside their specified ones. For example, the Coalition of Finance Ministers for Climate Action is an organization that consists of over 75 finance ministers from nations around the globe. The members represent nations that produce over 65% of the global GDP and are responsible for nearly half of all carbon emissions. The members work together, exchanging experiences and expertise to combat climate change and its effects. They discuss the fiscal and economic policies that can help reduce greenhouse gas emissions and incentivize low-carbon growth—policies such as carbon taxes and emissions trading schemes, for example.
Finance ministers were also instrumental in dealing with the COVID-19 pandemic and its devastating economic impact. Lockdowns put tremendous pressure on national economies and the international supply chain was disrupted, leading to shortages of necessary goods and, in some cases, plunging large numbers of people into poverty. Massive government financial resources had to be unlocked to fight the deadly disease, stop its spread, and shore up the economy. Then, after the worst of the pandemic had passed, the challenge was to restore severely damaged economies and return people to work. How well each nation recovered from the economic downturn caused by COVID-19 depended in part on the work of its finance minister.
Zainab Shamsuna Ahmed, finance minister for Nigeria, recently discussed some of the challenges faced by her country as it struggles to recover from pandemic-induced economic damage. Nigeria is Africa’s largest economy, and after the pandemic, some 27 million Nigerians fell into poverty.
Ahmed’s response to the dire situation was to attack it on several different fronts, as she explained in an interview with Africa Renewal, a digital magazine published by the United Nations. The Nigerian government’s response included cash transfers to individuals and support for micro, small, and medium-sized businesses; the latter included payroll assistance so businesses could continue to issue paychecks to employees. Other interventions included low-interest loans to help businesses maintain and grow their workforces. Meanwhile, a public works initiative put large numbers of younger adults to work building necessary infrastructure like roads and housing. Farmers could also access assistance to maintain their crop production.
The complexity of the issues faced by finance ministers such as Ahmed requires extensive knowledge of both national and international financial affairs. Finance ministers must be willing to take risks at times in order to execute their responsibilities to their citizens, but they also need to know when a more cautious approach is best. In most governments, excluding the overall leader, the finance minister occupies the most important, powerful, and influential position.