9

Economics of Pakistan

CHA
EIGHT
PTER

BUDGET
1. COMPONENTS OF FEDERAL BUDGET
Budget
“Budget is a financial plan which represents the anticipated revenues that
government receives through different sources during a year and proposed
expenditures which are made by the government on different items during the
year”.
In Pakistan, the federal or central government and provincial governments make
their budgets for the next financial year which starts from Ist July to 30th June
next year. Before 1959-60, the fiscal year was from April 1 to March 31.
Structure of Budget
Segments RECEIPTS EXPENDITURES
Revenue Budget Revenue receipts Non-Development
expenditures
Capital Budget Capital receipts Development expenditures
Total -------------------------- ----------------------------------
There are two sides of budget chart. In one-side receipts and in other side
expenditures are shown. Receipts side includes revenue receipts and capital
receipts while expenditures side includes non-development expenditures and
development expenditures.
Types of Budget
There are three kinds of budget
1. Balanced Budget: A balanced budget is that in which total revenues of
government are exactly equal to the total expenditures of government.
Balanced budget = Total revenues = Total expenditures
2. Surplus budget: A surplus budget is that in which total revenues of
government are greater than the total expenditures of government.
Surplus budget = Total revenues > Total expenditures
3. Deficit Budget: A deficit budget is that in which total revenues of
government are less than the total expenditures of government.
Deficit budget = Total revenues < Total expenditures
Classification of Budget
The Federal budget is divided into two main sections or components or parts.
1) Revenue Budget 2) Capital Budget
Budget 10

Finance Division and different departments of government prepare revenue

budget and Planning and Development Division and Finance Division prepare
Capital budget.
1) Revenue Budget
Revenue Budget is called Non-Development budget. Revenue budget represents
proposed expenditures and anticipated revenues of government during any
financial year. This part of budget is concerned with Revenue receipts and Non-
Development expenditures. The receipt side of revenue budget contains revenue
receipts, which include the incomes from tax sources, non-tax sources and
surcharges. The expenditure side of revenue budget contains non-development
expenditures, which include debt repayment, defense expenditure subsidy etc.

Structure of Revenue Budget

RECEIPTS EXPENDITURES

Revenue receipts Non-Development expenditures

Total ---------------------- ---------------------------------------

Now we discuss Revenue receipts in detail:
Revenue Receipts
Revenue receipts are collected from two sources:
1) Tax Receipts
2) Non-Tax Receipts

Tax Receipts Non-Tax Receipts

1) Income tax, profit tax 1) Interest
2) Sales tax 2)Dividends, trading profits and
property income
3) Excise duty 3) State enterprises and Defense
receipts
4) Customs duty 4) Coinage and printing of currency

5) Surcharges 5) Profit from State Bank

6) Receipts from civil administration
and passport fee
1) Tax Receipts
Income Tax, Profit Tax
Income tax is a direct tax and it cannot be shifted to any other person. Income tax
is lived on the incomes of the individuals. While corporate or profit tax is
imposed on the joint stock companies. It is the second most important source of
federal revenue after general sales tax.
 11
Economics of Pakistan

Sales Tax
Sales tax is an indirect tax and its incidence is shifted to ultimate consumers.
Sales tax is imposed on the sale of the goods, which are domestically produced or
imported goods. General sales tax during past few years has become the most
important source of income. Its rate is 15%. Federal Excise department collects
sales tax paid by the importers on imported commodities. While sales tax paid by
wholesale dealers in income tax department, is collected by sale of goods
produced in Pakistan.
Excise Duty
This is another source of revenue for government. Excise duty is imposed on the
production of commodities. Excise duty is levied on goods produced within the
country e.g. tea, soap, fertilizers, cloth, sugar, cement etc. Excise duty is also
imposed on services of hotels, restaurants and advertisements.
Customs duty
Custom duty is levied on the commodities, which are exported or imported. This
includes import and export duties. Import duty is charged on almost all kind of
commodities imported. Its rate is higher for non-essential goods and lower for
essential goods e.g., raw materials, machinery etc.
Surcharges
Surcharges are imposed on petroleum, natural gas and electricity. The government
gets more of its income from surcharges.
2) Non-Tax Receipts
The federal government offers different kinds of services to the people. From
such activities it earns income. Major non-tax receipts are following:
Interest
The federal government gives loans to provincial governments, autonomous
bodies etc and gets interest on these loans. This is the most important source of
non-tax revenue.
Dividends, Trading Profits and Property Income
The federal government participates in trade through its organization such as
Trading Corporation of Pakistan (TCP), Rice Exports Corporation of Pakistan etc.
Government also receives income from state owned land, forests mines, canal
water etc.
State Enterprises and Defense Receipts
Government provides the services of post office, telephone and telegraph,
WAPDA and OGDC, TV etc and receives income. Defense receipts are also
earned to export arms.
Coinage and Printing of Currency
Government prints notes and mint coins. These provide small amount of revenues
as well.
Budget 12

Profit from State Bank

The federal government receives profit from State Bank of Pakistan.
Receipts from Civil Administration and Passport Fee
Civil administration also brings some revenue in the form of fees, fines, license
fee etc. Passport fee is also a source of non-tax revenue.
Non-Development Expenditures
Non-Development expenditures or Recurring expenditures are also known as
current expenditures or revenue expenditures. Non-Development expenditures are
the expenditures, which are faced by government to run the current projects. From
these projects, government fails to raise revenues and productive assets of state do
not grow. Economists always prefer development expenditures to non-
development expenditures.
Main Heads of Non-Development Expenditures
The main heads of Non-Development expenditure are the following
1. Debt repayment and debt servicing 2. Defense expenditures
3. Expenditure on Civil Administration 4. Subsidies
5. Grants
Debt Repayment and Debt Servicing
The federal government of Pakistan has taken huge loans from external and
internal sources. About 50% of total current expenditure of government is used
for repayment of loans and interests.
Defense Expenditures
Due to war with India and tension on borders, federal government has to spend on
defense expenditures. It is second to debt expenditures.
Civil Administration and Law and Order
The federal government spends a lot of its current expenditures on civil
administration and law and order. For civil administration, the government
maintains many departments such as police, judiciary, and foreign affair
departments etc.
Subsidies
The federal government gives subsidies on commodities. For example, the
government import fertilizer and wheat at higher prices but sell at lower prices.
Grant to Provinces, Azad Kashmir and Tribal Areas
The federal government provides grants to provinces, Azad Kashmir and tribal
areas.
1) Capital Budget
Capital Budget is called Development budget. Capital budget represents
proposed expenditures and anticipated revenues of government during any
financial year. This part of budget is concerned with Capital receipts and
Development expenditures. The receipt side of capital budget contains capital
receipts, which include the incomes from internal sources and external sources.
 13
Economics of Pakistan

The expenditure side of capital budget contains development expenditures, which

include expenditures on education, health, infrastructure etc.
Structure of Capital Budget

RECEIPTS EXPENDITURES
Capital receipts Development expenditures
Total ---------------------- ---------------------------------------
Now we discuss capital receipts in detail
Capital Receipts
Capital receipts are collected from two sources:
1) Internal Sources
2) External Sources
Internal Sources External Sources
1) Loans from people and banks 1) Project aid.
which government gets by
selling bond to them
2) Deficit financing (printing 2) Commodity aid,
notes
3) Unfunded debt (post offices 3) Other aids
saving bank, national saving
certificates postal, life insurance
4) Receipts from investment

Development Expenditures
Development expenditures are also known as Non-Recurring expenditures.
Development expenditures are the expenditures, which are faced by government
to run the development projects. From these projects, government raise revenue
and productive assets of state grow as well.
Main Heads of Development expenditures

1. Irrigation projects
2. Expenditure on transportation and communication
3. Expenditure on Agriculture Industry development
4. Education Health
Budget 14

2. ECONOMIC IMPORTANCE OF BUDGET

1. Significance for the Consumers

The budget has significance for the consumers. In budget, government imposes
taxes on the various consumer goods. Government usually imposes high tax on
such goods, which have less elastic demand because these goods give more
revenues. But purchasing power of the people decreases and they can react
against the government, as these goods are necessities. So, the government keeps
away from this taxation.
2. Significance for Investors and Producers
The budget has importance for investors and producers as well. In budget,
government imposes tax and gives subsidies on commodities. Government also
gives concessions, tax rebates and tax holidays in budget so that investors invest
in the required region of the country. Therefore, the investors and producers wait
for budget to make their investment decisions.
3. Significance for the Employees
The budget is important for employees whether they are working in government,
semi government, or private institutions. Due to rise in prices, purchasing power
of the employees is decreasing day by day and they wait for budget to see that the
government has increased their salaries or not in the budget.
4. Share of Expenditures on Different Sectors
The budget estimates show the share of expenditures on different sectors of the
economy i.e. agriculture, industry, health, education, means of transportation and
communication etc. On the strength of these expenditures, the relative importance
of different sectors of the economy can also be assed from the budget declaration.
5. Judgment of Economic Condition
The economic condition of a country can be judged by the budget. If the different
sectors of economy are growing it means that the output and incomes of the
people are rising. More incomes or more production will provide more revenues
to government in the form of taxes. Due to rise in government revenues,
productive and non-productive expenditures of government increases and as a
result employment level increases and poverty decreases.
6. Information About Financial Resources of Country
The budget statistics of the country shows the financial position of the country. As
the budget tells about total revenues of the country; how much revenues has
obtained from the tax sources; how much from non-tax sources and surcharges. It
explains, whether the shares of direct taxes or indirect taxes is higher. The budget
tells about the expenditures; how much expenditures have been made on
development heads, how much on non-development heads.
7. Significance for Economic Policies
The budget provides help to know the economic policies and plans of the
government. From budget statistics we can assess whether the government is
 15
Economics of Pakistan

doing more of development expenditure or on non-development expenditure;

which sector of economy is most important and more facilities are being provided
to agriculture sector or to industry; whether the agriculture sector being
subsidized and what will be the affect of these subsidies on the economy; whether
regional differences are increasing or decreasing and; whether the government is
preferring to some specific area or to the whole economy.
8. Evaluation Of Budget Conditions
The budget estimates shows the conditions of a country budget, i.e. whether the
budget is balanced, surplus or deficit. Now days, most of the governments’
budgets are deficits. So, the government has to do deficits financing through
banking source, non-banking source or through printing new money.
9. Information About Distribution of Income
The budget also gives information about distribution of income in the country. If
the government is imposing more direct taxes and the major share of public
expenditure is diverting to the poor people development, the incomes of these
people will increase and create quality in income distribution.
10. Direction of Foreign Trade
The direction of foreign trade can be observed from the budget of the country.
Government gives facilities, concessions and rebates to exporters so that exports
may increase and imports decrease. In addition, budget provides information
about custom duty. It would affect BOP due to changes in rebates in exports and
imports tariffs. Budget gives information about foreign debt and the interest
payments made against foreign debts.

3. FEDERAL BUDGET PROCESS IN PAKISTAN

The budget year in Pakistan is from 1st July to 30th June. The Process of budget
formulation starts in October each year on issuance of a Budget Call Circular by
Ministry of Finance. The original estimates are framed in minute detail by the
agencies and departments, which collect the receipts and incur the expenditure,
keeping in view the past actuals, current trends and future expectations and
commitments. These estimates are submitted by the estimating authorities to their
administrative Ministries and Divisions who, in turn, examine and pass these on
to the concerned Financial Advisers with their recommendations. The Financial
Adviser and Ministry of Finance, as recommended by the Administrative
Ministries and Divisions, subject the estimates, to detailed scrutiny before they
are finally accepted for inclusion in the budget.
Budget Call Circular
The procedure applicable to the preparation of the budget estimates for a financial
year is indicated by the Ministry of Finance every year in a “Budget Call” issued
to the administrative Ministries / Divisions and Departments of the Central
Budget 16

Government. The circular contains comprehensive instructions for the preparation

and scrutiny of the budget estimates. It also sets out the target dates by which the
various stages of budget formulation are to be completed. Since time factor is
important, emphasis is laid, among other things, on the strict observance of the
budget time table at all stages of budget making.
Preparation of Estimates
The budget estimates for the ensuing year are formulated separately in respect of
non-development/current expenditures and development expenditure. The
estimates are supported by complete details. The revised estimates for the current
year, prepared simultaneously, include provision for such expenditure as has been
duly authorized and for which there is reasonable expectation that it will be
incurred before the close of year. In all cases, where revised estimates for the
increase has been duly authorized by the competent authority, and also the
manner in which this excess is to be met, i.e., whether by appropriation of savings
in the existing grants / appropriations from other items or a supplementary grant.
In case the revised estimates are less than the authorized grants, the reasons for
short utilization of the grants are to be invariably stated.
As the budget is essentially based on the cash accounting system, the estimates
are required to be prepared on the basis of what is expected to be actually
received or paid for during the ensuing year and not merely the revenue demand
or the liability of expenditure falling due in that year. According to the
conventional classification, the budget is divided into two main sections, namely:
a) Revenue Budget
b) Capital Budget
The revenue budget presents the current or day-to-day non-development
expenditure, i.e., defence, debt, repayments and running of civil government and
other activities which are financed from current revenues derived through taxes,
duties and other miscellaneous receipts. The difference between revenue receipts
and current / non-development expenditure results in revenue surplus for the year
which is transferred to the capital budget. The deficit is met out of borrowings.
The capital budget is designed to create material assets which add to the economic
potential of the country. Its main features are that it must involve construction of a
work or acquisition of a permanent asset of public utility such as irrigation and
industrial projects. With ever increasing investment to promote economic
development, the capital budget is assuming increasing importance. The capital
expenditure is generally met from the revenue surplus, reserve funds and
borrowing for specific or general purpose.
The abovementioned two divisions of the Government budget are merged
together to work out the resource estimates which indicate the cash balance
position of the Government at the beginning and end of the financial year.
Annual Development Programme (ADP)
 17
Economics of Pakistan

Provision for development expenditure is included in the budget on the basis of

the Annual Development Programme prepared by the Planning Commission in
consultation with the Ministry of Finance and the Provincial Governments and
approved by the National Economic Council.
The Formulation of the Annual Development Programme is one of the most
important aspects of the budget making. Emphasis is laid on drawing-up the
Annual Development Programme so that only approved projects, which go
through careful technical scrutiny in the Development Working Party and
approved by the Executive Committee of the National Economic Council, or have
otherwise received the approval of the competent authority, are included in the
Annual Development Programme. The Programme, as finally approved by the
National Economic Council, is reflected in the budget.
The exercise for the preparation of the Annual Development Programme starts
some time in early November when keeping in view the overall requirements of
the economy and plan targets, the size of the Annual Development Programme is
fixed and communicated sector-wise to the executing agencies and the Provincial
Governments by the Planning Commission. Within the overall allocations so
intimated by the Planning Commission, the detailed sector-wise development
programmes are formulated by the sponsoring agencies and finalized after
detailed discussion with the Planning Commission. These allocations are then
discussed and finalized in the meetings of the Priorities Committee in March /
April, in April / May by the Annual Plan Coordination Committee and finally by
the National Economic Council. The Annual Development Programme, as finally
approved and incorporated in the budget, presents the blue print for action by the
Federal and Provincial Government and indicates the financial allocations along
with physical targets in respect of various development schemes.
a) Resources Estimates
Since the successful implementation of the Annual Development Programme as
an instrument of economic development largely depends upon the availability of
resources, the determination of the size of the programme is preceded by a
detailed exercise in resource estimation.
Ministry of Finance undertakes this exercise in coordination with the concerned
Government agencies, particularly the Central Board of Revenue (CBR) and the
Provincial Finance Departments. The components of resource estimates are:
(i) Public Savings, i.e. the excess of revenue receipt over current expenditure of
the Federal and Provincial Government.
(ii) Net capital receipts of the Federation and the Provinces.(i.e. Recovery of
loans, saving schemes and prize bond proceeds etc)
(iii) The Federal Government's estimates of:
a) Foreign economic assistance
b) Deficit financing (Bank Borrowing) to the extent the latter is warranted by the
state of the economy.
Budget 18

As the development outlays in the provincial field are increasing and the
provincial resources for this purpose are not adequate, the Federal Government
render financial assistance to the Provincial Governments on a larger scale for
implementation of their development programme.
b) Foreign Exchange Component of ADP
Side by side with the finalization of the Annual Development Programme,
endeavor is made to estimate the foreign exchange component of the programme
as realistically as possible. The expenditure in foreign exchange is shown
separately from the expenditure in local currency, both in the revenue and capital
budget. This also serves as an indication to the administrative authorities that the
budgetary allocation for foreign exchange expenditure is not available for
expenditure in local currency.
Effect to New Taxation Proposals
The proposals for new, enhanced or revised taxation conceived as a part of the
budget are given effect by means of a distinct legislation. This legislation is an
integral part of the budget presentation and without it no tax can be levied,
enhanced or revised.

Schedule of Authorized Expenditure

After the budget has been approved by competent authority, an authenticated
Schedule of Authorized Expenditure is drawn up in the same form as the Annual
Budget Statement, in so far as it relates to expenditure.
This schedule approved and signed by Prime Minister constitutes the sole
authority for withdrawal of money from the Federal Consolidated Fund in the
annual Budget statement. The Schedule reflects the extent of expenditure to be
made under a specific grant/appropriation. It also specifies the expenditure
Charged upon Federal Consolidated Fund and otherwise. The Charged portion is
always reflected in italics.
Article 82 of the Constitution provides that the expenditure 'charged' upon the
Federal Consolidated Fund may be discussed in, but shall not be submitted to the
vote of, the National Assembly.
Article 81, of the Constitution provides that following expenditures shall be
charged upon the Federal Consolidated Fund: -
a) The remuneration payable to the President and other expenditure relating to his
office, and the remuneration payable to-
(i) The judges of the Supreme Court;
(ii) The Chief Election Commissioner;
(iii) The Chairman and the Deputy Chairman (of the Senate)
(iv)The Speaker and the Deputy Speaker of the National Assembly;
(v) The Auditor-General;
 19
Economics of Pakistan

b) The administrative expenses, including the remuneration payable to officers

and servants of the Supreme Court, the department of the Auditor-General and the
office of the Election Commission and the Secretariat of the Senate and the
National Assembly;
c) All debt charges for which the Federal Government is liable, including interest,
sinking fund charges, the repayment or amortization of capital, and other
expenditure in connection with the raising of loans, and the services and
redemption of debt on the security of the Federal Consolidation Fund;
d) Any sums required to satisfy any judgment, degree or award against Pakistan
by any court or tribunal and;
e) Any other sums declared by the Constitution or by Act of [Majlis-e-Shoora
(Parliament)] to be so charged.
Submission of Budget Proposals (Books) to Federal
Cabinet
The Budget proposals prepared by the Ministry of Finance is considered by the
Federal Cabinet and approved for presentation to the Parliament.
Submission of Budget / Finance Bill to the National
Assembly
The Minister of Finance shall, in consultation with Prime Minister and the
Speaker, prepare a time-table for the consideration of the Annual Budget by the
National Assembly. The Secretary of the Assembly shall intimate the time-table
so decided upon to all concerned.
Submission of Budget to the Senate
Prior to the introduction of Legal Framework Order, there was no provision for
the Senate to consider the Money bill (Budget). As per the current provisions, a
copy of the Annual Budget Statement (Budget) is transmitted to the Senate at the
same time when it is submitted to the National Assembly. The Senate may, within
seven days, make recommendations thereon to the National Assembly. The
National Assembly shall, consider the recommendations of the Senate and may
pass the Budget with or without incorporating the recommendations of the Senate.
Authentication of the Schedule of Authorized Expenditure
After the Budget is passed by the National Assembly, the schedule of authorized
expenditure is authenticated by the Prime Minister. The schedule so authenticated
shall be laid before the National assembly, but shall not be open to discussion or
vote thereon.
Budget at a Glance
It explains the overall budgetary position covering all aspects both revenue and
expenditure e.g.
1. Receipts
i) Tax revenue ii) Non-tax revenue
Budget 20

iii) Total gross revenue receipts (i +ii)

iv) Revenue Assignments to Provinces
v) Net federal revenue (iii minus iv)
2. Current Expenditure.
3. Surplus Available for ADP Financing. (1 minus 2)
4. Resources:
CBR
a. Internal Resources
Taxes, Principal Ministry of Finance
i) Net
Head Capital Receipts
of Revenues
Budget Capital
ii) Self-financing
EAD
(by Provincial Governments/autonomous bodies.)
CBR/EAD/SBP
b. External Resources.
Foreign Aid
/ Ministries
Ministries Ministries
Divisions/Dept Divisions/Dep
Divisions/Dept t
5. Development Outlay.
Debt Deposits of
Remittances Ministries/Division
6. GAP (3 + 4 - 5)
Review &
Ministries/Dept Recommendations
Other Revenue
THE
Capital Receipts FEDERAL BUDGET PROCESS AT A GLANCE
Concerned
Financial Advisors
Detailed Scrutiny
OCT

Ministry of Finance
Detailed Scrutiny

Ministry of Finance
NOV
TO
Formulation of FEB
Budget Proposals

Federal Cabinet
FEB/MAR

Consideration & Approval of

Budget Proposal

National Assembly MAR

The Senate

Consideration & Submission of Debate & Assent of the Finance

Recommendations as per Article
73 of the Constitution & Rule of
the Procedure & Conduct of
Business of the Senate
Bill as per Article 80 to 85 of the
APR
Constitution & the Rule of the
Procedure & Conduct of Business
of the National Assembly

Prime Minister MAR TO JUN

Authentication of the Schedule

of Authorized Expenditure

Schedule of Authorized
Expenditure sent to each
ministry /Division
 21
Economics of Pakistan

MAY/JUN

JUN/JUL

JUN/JUL

ANNUAL DEVELOPMENT PROGRAMME (ADP) FORMULATION

PROCESS
AT A GLANCE

MINISTRY OF FINANCE / MINISTRY OF PLANNING &

DEV OCT
BUDGET CALL CIRCULAR

MINISTRIES/DIVISIONS/DEPARTMENTS NOV TO
FEB
DEVELOPMENT REQUIREMENTS

PLANNING & DEVELOPMENT DIVISION

MAR
SCRUTINY

PRIORITIES COMMITTEE IN MIN OF FINANCE

APR
SCRUTINY
& FORMULATION OF RECOMMENDATIONS
Budget 22

ANNUAL PLAN COORDINATION COMMITTEE

APR/MAY
CONSIDERATION

NATIONAL ECONOMIC COUNCIL

MAY /JUNE
CONSIDERATION & APPROVAL

MINISTRY OF FINANCE
JUNE
INCLUSION IN BUDGETARY PROPOSALS

4. FEDERAL BUDGET 2010-11

Finance Minister Dr Abdul Hafeez Shaikh presented the federal budget for 2010-
2011. As usual, the government termed it business and investment friendly. The
government also projected it as people friendly and growth oriented budget.
Majority of the opponents labeled it anti-people, business and investments. Even
ruling coalition registered its dissatisfaction on the budget 2010-2011. The
business community reacted strongly on the increase of 1 percent of GST. The
civil society strongly rejected the reduction in PSDP.
Main Objectives
The federal minister outlined the objects of the budget which are given below as.
 The government will protect the growth by enforcing fiscal
discipline/accountability, corporate control, eliminating waste and tightly
controlling expenditure, successful managing of high ratios of inflation,
reducing borrowing from the banking sector especially from the SBP and
the last not the least, achieving a measure of self reliance through better
domestic resource mobilization.
 In the budget 2010-11 the government has targeted 4.5 percent GDP
growth rate. Trade deficit has been fixed at 11.7 billion dollars, or 6.1
percent of GDP. Exports for 2010-11 have been projected to grow
marginally to 19.9 billion dollars against 19.2 billion dollars estimated for
the ongoing fiscal year. Imports for 2010-11 are projected to increase by 6
 23
Economics of Pakistan

percent to about 31.7 billion dollars from 29.9 billion dollars projected for
the current fiscal year. Furthermore, remittances have been projected at
around $9 billion in the next fiscal year against 8.4 billion dollars
estimated for the ongoing fiscal year. The current account deficit is
targeted at 6.5 billion dollars, or 3.4 percent of the GDP in 2010-11.
 It has projected agriculture’s growth rate 3.8 percent, manufacturing 5.6
percent, and services sector 4.7 percent. Furthermore, it mentioned that the
production targets of wheat and rice have been set at 25 million tons and
6.2 million tons, respectively, for 2010-11. Credit to farmers, is expected
to increase. The production target for sugarcane in 2010-11 has been set at
53.7 million tons for kharif season. Agriculture sector has been projected
to grow by 3.8 percent. This is to be contributed by major crops (3.7
percent), minor crops (3.0 percent), livestock (4.2 percent), fishery (2.0
percent) and forestry (2.5 percent).
 In the budget it is assumed that energy shortages would decline and
industry would be given priority for uninterrupted supply of electricity and
gas. Improved cotton availability will also support the textile sector. The
services sector is expected to grow by 4.7 percent with contribution of
transport, storage and communication (4.6 percent) and wholesale and
retail trade (5.1 percent).
Salient Features of Budget
a. Total outlay and expected collection of revenue

Total outlay of the budget for is projected to the Rs 2764 billion, 12.3
percent higher than the size of the budget estimates for outgoing fiscal
2009-10. The resource availability during 2010-11 has been estimated at
Rs 2598 billion against Rs 2299 billion in the budget estimates of the
outgoing fiscal year. Moreover, net revenue receipts for 2010-11 have
been estimated at Rs 1377 billion indicating an increase of 1.9 percent
over the budget estimates for current fiscal year 2009-10.

b. Provincial sharing

Since it is the first budget after the 7th NFC Award, the provincial share in
federal revenue receipts is estimated at Rs 1034 billion during 2010-11
which is 57.9 per cent higher than the budget estimates for 2009-10.

c. Capital receipts
Budget 24

The federal budget says that the capital receipts (net) for 2010-11 have
been estimated at Rs 325 billion against the budget estimates of Rs 191
billion in 2009-10 indicating an increase of 70.2 per cent.

d. External receipts

The budget 2011-2011 further elaborates that the external receipts in

2010-11 are estimated at Rs 387 billion. This shows a decrease of 24 per
cent over the budget estimates for 2009-10.

d. Overall expenditure

In the budget the overall expenditure during 2010-11 has been estimated at
Rs 2764 billion of which the current expenditure is Rs 1998 billion and
development expenditure at Rs 787 billion. It shows decline of less than
one per cent over the revised estimates of 2009-10, while development
expenditure will increase by 25.3 per cent in 2010-11 over the revised
estimates of 2009-10. Moreover, the share of current expenditure in total
budgetary outlay for 2010-11 is 72 per cent as compared to 78 per cent in
revised estimates for 2009-10.

e. PSDP

The size of PSDP for 2010-11 is Rs 663 billion. While for other
development expenditure an amount of Rs 124 billion has been allocated.
The PSDP shows an increase of 30 per cent over the revised estimates.
The provinces have been allocated an amount of Rs 373 billion for budget
estimates 2010-11 in their PSDP as against Rs 300 billion in 2009-10.
Furthermore the budget 2010-2011 shares that an amount of Rs 10 billion
has been allocation to Earthquake Reconstruction and Rehabilitation
Authority (ERA) in the PSDP 2010-11.

f. Deferred VAT

The government deferred the imposition of VAT till October 1, 2010

instead of July 1, 2010, but increased the GST from existing 16 to 17
percent.

g. Salary, medical and pension

 25
Economics of Pakistan

The salaried class thanked the government for the 50 percent increase in
their salaries. But government of Punjab strong protested the increase in
salaries which would be troublesome for Rs.50 billion to its kitty. The
federal government also announced to double the medical allowance for
employees working in BS-1 to 16 and increased the medical allowance by
15 percent of those above Grade 16. The pension of those who had retired
after 2001 was increased by 15 percent and those who had retired before
2001 by 20 percent. The minimum monthly pension was proposed to be
increased from Rs 2000 to Rs 3000 while the rate of family pension was
enhanced from 50 to 75 percent. The government also announced a
scheme for providing employment to the 200,000 unskilled in rural areas
with an amount of Rs 5 billion.

Serious problems

The federal finance minister also mentioned some of the important macro-
economy problems too.

the problems in resource mobilization that is strongly reflected in an

abysmal tax-to-GDP ratio; secondly, the abominable performance of most
Public Sector Enterprises (PSEs) that are undoubtedly a profound cause of
burden on the national kitty, draining off a hefty amount of Rs 235 billion
from the budget whereas the total federal government expenditure in the
head of salaries is Rs 165 billion.

For instance, Pepco alone claims as much as a whopping Rs 180 billion

per annum while Pakistan Steel gets Rs 1 billion a month. The finance
minister declared that unless the PSEs improve their performance they
shall no longer get the money of the people of Pakistan. He has committed
to restructuring eight PSEs with rigid timelines after due approval from
the Cabinet.

Conflicting realities

According to many economists, the 1 percent increase in budget 2010-

2011would be harmful to common people. The rates of utility bills would
also be increased. It is irony that we are facing severe energy crisis and
still no substantial amount has been allocated for the development of
Budget 26

Basha dam or coal reservoirs in the country. In an interesting move the

government reduced the income tax collected along with the electricity
monthly bill from the industrial and commercial consumers from 10 to
five percent but surprisingly government has also doubled the federal
excise duty (FED) on gas from five per cent to 10 per cent. It is estimated
that this move would be going to hard to poor of this country. Moreover,
the government also announced to increase income tax exemption limit for
salaried taxpayers from Rs200,000 to Rs300,000 benefiting approximately
430,000 taxpayers. “The exemption limit for non-salary income has been
raised from Rs 100,000 to Rs 300,000 per year, benefiting about 350,000
tax payers.

In the budget 2010-11 the government has allocated Rs 16.945 billion for
health sector under the PDSP for the next fiscal. It is estimated around Rs
6 billion less than that of the allocation announced for the health sector
under the PSDP for year 2009-10. It is feared that the health sector budget
announced for 2010-11 would not be able to provide any significant relief
to general public. The budgetary allocation for the family Planning and
primary healthcare and the expanded programme on immunization has
been slashed. In the budget education sector gained lower priority. An
amount of Rs34,500 million has been allocated for the education affairs
and services in the federal budget. Moreover, a sum of Rs3,174 million
has been allocated for pre-primary and primary education against the
amount of Rs2,887 million spent last year. The amount of Rs4,232 million
have been allocated for the secondary education affairs and services
against Rs3,828 million earmarked last year. The budgetary allocation to
education sector has been decreased as compare to pervious year.

It is estimated that the proposal to impose a 0.3 percent withholding tax on

banking transactions including withdrawal where such transaction exceeds
rupees 25000 in a day would be discouraging and disturbing. Majority of
the banking experts feel hampered with the tax on cash withdrawals and
consider it as a damper on deposit growth.

It seems that the government has badly ignored agriculture and industries
sectors, and announced no visible incentives in the federal budget 2010-
11. It withdrew subsidies for the farming community on imported
fertiliser, Benazir tractor scheme and tube-well in Balochistan. It is feared
 27
Economics of Pakistan

that due to which agriculture could also affect the sector’s production next
year. The government has been keep on saying acute shortage of resources
and still once again, the agriculture sector has been exempted from tax.
From time to time we have been facing food security problems and no
funds have been allocated in this regard.

Same is the case of industrial sector. R & D support for textile and
clothing sector and motorcycle manufacturer, 3 per cent mark up for
spinning sector and compensatory support to the users of the PTA have
been deprived of subsides for the next financial year.

Concluding Remarks

The government should adopt all possible measures to increase tax-to-

GDP ratio, high levels of inflation and managing the ongoing saga of
energy crisis.
 Budget 28

COMPARATIVE BUDGETARY POSITION

2009- 10 AND 2010 - 11
(Rs in Million)

Budget Revised Budget

Classification 2009-10 2009-10 2010-11

i) RESOURCES ( a + b) 2,298,813 2,496,448 2,597,893

a. Internal Resources 1,788,400 1,918,463 2,211,273
- Revenue Receipts (Net) 1,351,989 1,396,667 1,377,349
- Capital Receipts (Net) 190,513 260,271 325,384
- Financing of PSDP by Provinces 172,987 183,957 341,615
- Change in Provincial Cash Balance 72,911 77,568 166,925

b. External Resources 510,413 577,985 386,620

ii) EXPENDITURE 2,462,310 2,585,557 2,764,437

- Current Expenditure 1,699,193 2,017,255 1,997,892
- Development Expenditure (PSDP) 646,000 510,000 663,000
- Other Development Expenditure 157,117 118,302 123,545
- Est. Operational Shortfall in Expenditure (40,000) (60,000) (20,000)
PRIVATIZATION PROCEEDS 19,351 - -

BANK BORROWING 144,146 89,109 166,544

 29
Economics of Pakistan

BUDGET AT A GLANCE 2010-11

in Billion
Receipts Expenditure
(a) Tax Revenue* 1778.7 (A) CURRENT 1997.9

General Public
(b) Non~Tax Revenue 632.3 1387.7
Service
Defence Affairs &
Gross Revenue Receipts 2411.0 442.2
Services
Public Order Safety
Less Provincial Share 1033.6 51.3
Affairs
I Net Revenue Receipts 1377.4 Economic Affairs 66.9
Environment
II Net Capital Receipts 325.4 0.4
Protection
Housing and
III External Receipts 386.6 1.8
Community
Health Affairs and
IV Self Financing of PSDP by 341.6 Services 7.3
Provinces
Recreational,
V Change in Provincial Cash 166.9 Culture 4.4
Balance Services
VI Bank borrowing 166.5 Education Affairs 34.5
Services
Social Protection 1.5
(B)
DEVELOPMENT 766.5
PSDP 663.0
Federal 290.0
Government
Provincial 373.0
Government
Est. Operational
~20.0
Shortfall
Other Dev. 123.5
Expenditure
TOTAL RESOURCES 2764.4 TOTAL 2764.4
EXPENDITU
(ItoVII) (A+B)

* Out of which FBR collection has been estimated at Rs 1667 billion

Budget 30

Questions for Review

Q1: Explain the components of federal budget in detail.

Q2: Explain the economic importance of Budget.
Q3: Explain the federal budget process in Pakistan.
Q4: What are the objectives of federal budget 2010-11? Briefly evaluate the
salient features of federal budget 2010-11.