In underdeveloped countries, the lack of information on the economy is a major issue. Planning has been used to acquire and analyze the necessary data to gain a better understanding of the functioning of the economy. Moreover, the price system has failed to address the problem of mass unemployment, which was a major issue during the 1930s. Additionally, there is a serious problem of covert unemployment in underdeveloped countries that cannot be solved without a comprehensive economic plan for development. Development planning is now practiced in more than one hundred countries and is mainly used to define the role of the public sector in national economic development.
In industrialized countries, the government plays an important role as an investor, regulator, and stabilizer, which has had a great influence on the planning of private sector activities. In developing countries, however, the formulation of development plans and related strategies is a different activity. The main advantage of this approach is that planning is considered in a broader framework that goes beyond the traditional choice between the mechanism and the direction of the market. It also involves a horizontal process of participation and consent. In some cases, it is feared that overbuilt plans may reduce flexibility in terms of revising objectives.
Therefore, plans no longer provide a coherent framework or visionary guide for budget formulation. In centrally planned economies, the main means of production are owned by enterprises and state institutions, and the activities and tasks of each production unit are reflected in the national plan. Planning in mixed economies involves two approaches: a detailed plan for government disbursements and informal guidance to the private sector about its activities. Political instability and economic uncertainty have led to an increased need for flexibility in planning and greater synchronization with the annual budget. Sectoral planning assigns greater responsibilities to budgeting tasks since it is necessary to review the financial aspects of each sector and its components at each stage of the planning and budget cycle. In conclusion, planning is essential for underdeveloped countries as it provides an impetus to acquire and analyze data on their economy, helps address mass unemployment, and provides guidance on government disbursements. It also helps create a coherent framework for budget formulation and assigns greater responsibilities to budgeting tasks.