Public expenditure

Public expenditure can be defined as the expenditure incurred by public authorities like central, state and local governments to satisfy the collective social wants of the people is known as public expenditure. It is basically spending made by the government of a country on citizens' needs on items such as pension, provision, infrastructure etc. Public expenditure was restricted only to a small extent till 19th century due to laissez faire followed by the government, as classical then believed money left in private hands could bring better returns. It was only in 20th century when John Maynard Keynes pointed out the important role of public expenditure in determining the level of income and distribution in the economy. Since then government’s expenditure has shown an increasing trend. Even though public expenditure came into picture in 20th century, accelerating growth of government expenditure began in late 70s.There are several factors that have led to enormous increase in public expenditure through the years  Defense Expenditure: due to modernization of defense equipment by navy, army and air force to prepare the country from war or for prevention. Population growth: It increases with the increase in population, more of investment is required to be done by government on law and order, education; infrastructure etc. investment in different fields depending on the different age group is required. Welfare activities-: women welfare, mid day meals, pension provisions etc. Provision of public and utility services-provision of basic public goods given by government (their maintenance and installation) such as transportation. Accelerating economic growth: in order to raise the standard of living of the people. Price rise: higher price level compels government to spend increased amount on purchase of goods and services. Increase in public revenue: with rise in public expenditure government is bound to increase the public expenditure. International Obligation: maintenance of socio economic obligation, cultural exchange etc. (these are indirect expenses of government)

Public expenditure is the value of goods and services bought by the State and its articulations. Public expenditure plays four main roles:     It contributes to current effective demand It expresses a coordinated impulse on the economy, which can be used for stabilization, business cycle inversion, and growth purposes It increases the public endowment of goods for everybody It gives rise to positive externalities to economy and society as a whole (or in specific sectors and geographical areas), the more so through its capital component. With its prioritized structure and its peculiar decision-making processes, it substantiates the prevailing kind of State. In democracy, public expenditure is an expression of people's will, managed through political parties and institutions. At the same time, public expenditure is characterized by a high degree of inertia and law-dependency, which tempers the will of the current majority. Public expenditure can be financed through taxes, public debt, money emission, international aid.

Classification of Public Expenditure:
Classification of Public expenditure refers to the systematic arrangement of different items on which the government incurs expenditure. Different economists have looked at public expenditure from different point of view. The following classification is a based on these different views. 1. Functional Classification Some economists classify public expenditure on the basis of functions for which they are incurred. The government performs various functions like defense, social welfare, agriculture, infrastructure and industrial development. The expenditure incurred on such functions fall under this classification. These functions are further divided into subsidiary functions. This kind of classification provides a clear idea about how the public funds are spent. 2. Revenue and Capital Expenditure Revenue expenditure is current or consumption expenditures incurred on civil administration, defense forces, public health and education, maintenance of government machinery. This type of expenditure is of recurring type which is incurred year after year. On the other hand, capital expenditures are incurred on building durable assets, like

highways, multipurpose dams, irrigation projects, buying machinery and equipment. They are non recurring type of expenditures in the form of capital investments. Such expenditures are expected to improve the productive capacity of the economy. 3. Transfer and Non-Transfer Expenditure A.C. Pigou, the British economist has classified public expenditure as:1. 2.  Transfer expenditure Non-transfer expenditure Transfer Expenditure

Transfer expenditure relates to the expenditure against which there is no corresponding return. Such expenditure includes public expenditure on 1. 2. 3. 4. 5. National Old Age Pension Schemes, Interest payments, Subsidies, Unemployment allowances, Welfare benefits to weaker sections, etc.

By incurring such expenditure, the government does not get anything in return, but it adds to the welfare of the people, especially belong to the weaker sections of the society. Such expenditure basically results in redistribution of money incomes within the society.  Non-Transfer Expenditure

The non-transfer expenditure relates to expenditure which results in creation of income or output. The non-transfer expenditure includes development as well as non-development expenditure that results in creation of output directly or indirectly. 1. 2. 3. 4. Economic infrastructure such as power, transport, irrigation, etc. Social infrastructure such as education, health and family welfare. Internal law and order and defense. Public administration, etc.

By incurring such expenditure, the government creates a healthy conditions or environment for economic activities. Due to economic growth, the government may be able to generate income in form of duties and taxes.

old age pension.  Development Expenditure: All expenditures that promote economic growth and development are termed as development expenditure. Grants and Purchase Price This classification has been suggested by economist Hugh Dalton. unemployment benefits.  Unproductive Expenditure: Expenditures in the nature of consumption such as defense.e. expenditure on law and order. social insurance. Productive and Unproductive Expenditure This classification was made by Classical economists on the basis of creation of productive capacity. i. Grants are transfer expenditures. interest payments.4. public enterprises or development of agriculture increase productive capacity in the economy and bring income to the government. . Development and Non-Development Expenditure Modern economists have modified this classification into distinction between development and non-development expenditures. 6. Thus they are classified as productive expenditure.. For example. Such expenses are classified as unproductive expenditures. there will be no receipt of goods or services.  Grants: Grants are those payments made by a public authority for which there may not be any quid-pro-quo.  Productive Expenditure: Expenditure on infrastructure development. public administration. subsidies.  Non-Development Expenditure: Unproductive expenditures are termed as non development expenditures. 5. do not create any productive asset which can bring income or returns to the government. These are the same as productive expenditure. etc.

Developmental expenditures: to promote growth and development of the economy. For example. like government departments and offices. Purchase prices: Purchase prices are expenditures for which the government receives goods and services in return. judges. 8. social security measures. general administration. law and order. Social expenditures: on public health. transport. For example.  Special benefits to all: Expenditures that confer special benefits on all. etc. 7. defense. Classification According to Benefits Public expenditure can be classified on the basis of benefits they confer on different groups of people. maintenance of ceremonial heads of state. Expenditure on administration of justice: include maintenance of courts.  Common benefits to all: Expenditures that confer common benefits on all the people. Security expenditure: to maintain armed forces and the police forces. unemployment benefits. like expenditure on infrastructure. like the president. For example. administration of justice. Hugh Dalton's Classification of Public Expenditure Hugh Dalton has classified public expenditure as follows:       Expenditures on political executives: i. public prosecutors. public health. subsidies to weaker section.e. old age pension. community welfare. Administrative expenditure: to maintain the general administration of the country. social security. etc. irrigation. .  Special benefits to some: Expenditures that confer direct special benefits on certain people and also add to general welfare. Public debt charges: include payment of interest and repayment of principle amount. community welfare. For example. expenditure on education. salaries and wages to government employees and purchase of consumption and capital goods.

An increase of public expenditure raises GDP by the same amount. higher unemployment and disappointing GDP growth would lead to higher public expenditure through unemployment benefits and financial support to firms. Usually. Higher revenues (and maybe even a public surplus) may lead to higher public expenditure. Past choices have relevant impact on public expenditure because of inertia and instrumentalism. Automatic stabilizers may be at work. Impact on other variables: A GDP component as it is.g. the same surplus can instead be directed to tax cut and the deficit gap can be filled in by new taxes or more incisive fight to tax evasion. However. The middle class is ambivalent and will react depending on the specific frame that will be proposed by politicians. positively respond to state revenues. other things equal. In a different political and institutional context. because of a recession.Determinants: Public expenditure is determined by political will of the leading forces in the state: their priorities. Symmetrically. For those who desire a more or less balanced budget. and their interpretation of current economic and political phase. and provision of free or subsidized services. Sometimes considered as a completely exogenous variable. with the sequence of decisions being capable of "leaving no money" for the "last" choices. public expenditure has an immediate impact on GDP. In this context. Yet. public expenditure would turn out to be pro-cyclical. their desired state model. Bureaucracy may play an important decision role for the actual expenditure. low-income social groups are in favor of expanding public expenditure in social issues. instead. Specific expenditure categories and items have their favorable and opponent constituencies. as with the case of support schemes for unemployment: in this case. The current level of public deficit or surplus is ambivalently used to influence changes in the level of public expenditure. Certain large-scale projects can be the subject of a national debate and the decision can depend on its outcome. policy makers may turn out to follow an anti-cyclical broad control of public expenditure. since income is an important determinant of consumption. the State may be forced to cut public expenditure. the surplus is an invitation to spend. The rich tend to use less public services and to be more worried by the amount of tax necessary to fund public expenditure. that increase of income will be followed by a rise in consumption: a positive feedback loop has been . if there is an upper limit to public deficit and. Lawmakers facing elections are sensitive to the public opinion. as stimulus for jobs. the public expenditure would thus be fully in the hand of political decision-makers without dependency from the economic context. a deficit to cut. public expenditure may. tax revenue fall. e. The process of public budgeting is crucial to influence the outcome. Moreover.

investment or autonomous consumption.e. as with the case of health drugs. Exports would then be displaced as well. possibly through an interest rate increase. so that this attempt can be judged as difficult. The former risks to worsening GDP dynamics and engendering a vicious cycle. Some governments react by reducing public expenditure and freezing employment and wages in the public sector. real world data show often little reaction of public expenditure to the cycle. consumption may fall accordingly. Business Cycle Behavior: Public expenditure may turn out to be pro-cyclical or anti-cyclical depending on the political and institutional attitude toward public deficit. however. Other decides to spend more to stimulate the economy. public expenditure may trigger further consumption (books and all the other goods whose consumption depend on culture levels). Firms have to decide whether to increase production or prices in response to demand. in other cases. Moreover. By contrast. Public expenditure is also told to crowd-out investment. Most cycles show public expenditure as a stabilizing tool just keeping the same dynamics when the rest "goes wrong ―Public expenditure by Federal Government: . Wars are episodes of extremely high public expenditure. During recessions. as with education. only under extremely strong constraints has public expenditure been cut in absolute terms. Still. waiting for GDP rebound and. exactly as in the case of shocks in export. The full extent of this mechanism will depend. public budget usually depredates. by the reactions of the other economic agents. after-tax income).triggered between consumption and income. In more microeconomic terms. tax revenue tends to fall. The second would provoke a deep public deficit. With a few exceptions. possibly. it has always grown whatever the political orientation of the government. further leading. unless the pressure of the ex-soldiers for social advancement is met with an extension of the welfare state. to a currency appreciation. public expenditure may be directed to consumer goods and thus substitute families' expenditure. which can be broken by international trade dynamics. if consumers interpret the increase in public expenditure as a fall in their disposable income (i. followed usually by a return to normality. new taxes. Just the tempo can change. Long-term trends: In developed countries. in a floating exchange rate regime. financial inflows or other variables.

Fiscal Responsibility and Debt Limitation Act 2005 envisages a revenue surplus starting from 2007-08. Pakistan has succeeded in reducing fiscal deficit from an average of 7 percent of GDP in the decades of 1980s and 1990s to an average of 3.Fiscal Development 06-07: A sound fiscal position is an essential prerequisite for achieving macroeconomic stability which is increasingly recognized as a critical ingredient for promoting strong and sustained economic growth and lasting poverty reduction.8%. was at a deficit of 0. Since the situation required radical changes. a measure of government dies-saving. Pakistan’s hard earned macroeconomic stability is therefore underpinned by fiscal discipline. The associated public debt also declined sharply from over 100 percent of GDP to 53 percent of GDP by end-March 2007. The thrust of the reform has been at reducing tax rates. reducing the cost of doing business for trade and industry. tax collection by the CBR increased by112. reducing tax burden for lower income strata of the society and promoting a tax-payer friendly culture.2% of GDP in 2005-06 compared to a deficit of 2.6 percent of GDP in 2006-07. Inadequacy of revenue generation directly affects the government’s resource position and the availability of socially desirable public goods. Considerable efforts have been made over the last seven years to inculcate financial discipline by pursuing a sound fiscal policy. Pakistan has experienced serious macroeconomic imbalances in the nineties mainly on account of its fiscal profligacy and accordingly paid a heavy price in terms of deceleration in economic growth and investment and associated rise in the levels of poverty. The tax and tariff reforms are aimed at simplification of tax system.2% in 2000.5 percent during the last seven years. It has further progressed towards a targeted revenue surplus of 0.01. broadening the tax base to hitherto untaxed or under-taxed sectors and shifting the incidence of taxes from imports and investment to consumption and incomes. improvement in resource mobilization.The revenue deficit (th difference between total revenue and total current expenditure). In Pakistan’s economic history and until recently the mismatch between revenue collection and budgetary requirement was a norm rather than an exception. Adequate level of revenue generation is sine quo non for the public policy to meet expenditure obligations.The revenue surplus has significance in intergenerational distribution of debt burden. The structure of taxation has . During the last six years from 2000-01 to 2006-07. broad-based tax policy and tax administration reforms were initiated by the Central Board of Revenue (CBR) to improve upon the resource mobilization effort and increase tax compliance by providing congenial environment to the taxpayers. The importance of sound fiscal policy cannot be overemphasized in the case of Pakistan as it’s chronically high consolidated budget deficit (7 percent of GDP) and rising public debt burden (over 100 percent of GDP) have been the economy’s Achilles’ heal in the 1990s. boosting economic activity to ensure robust economic growth.

During the last seven years the development expenditure improved from 2. Central excise as a tax is losing its importance and gradually being faded out.5 percent of GDP by 1999-2000. Resultantly the share of current expenditure in total expenditure declined from 89 percent of total expenditure in1998-99 to72 percent in 2006-07. thereby showing an increase of 20 percent. This is the consequence of the tariff reform implemented by successive governments since 1990-91.5 percent during the same period. Second largest component of the current expenditure. Its shares in total taxes and indirect taxes were 22. In addition. has provided fiscal space to re-orient expenditure in favor of development expenditure.undergone considerable changes since the1990s.5 billion As against Rs.9 percent. Non-defense-non. showing an increase of 7.656.8 percent of GDP in 1999-2000 to 11. 645.3 percent and 12.0 billion in 2005-06. which is 17. Firstly.6 percent and 32. The share of sales tax increased at a relatively faster pace from 14.9 percent of GDP in 2006. respectively during the same period. The Central Board of Revenue (CBR) is targeted to collect Rs. dramatic changes have taken place.99 to2.52. . defense spending remained stagnant at around 3. The net collection stood at Rs.8 percent of GDP during the last seven years.9 percent of GDP in 2006-07.6 percent to 60. Total revenues are budgeted at Rs.2 percent of GDP in 2000-01 to 4.3 billion. 835 billion in 2006-07. This shows strong focus of the government on removing infrastructural bottlenecks and building physical assets. These have now been reduced to 8.0 billion in the comparable period of last year.2 billion fixed for the first ten months of current fiscal year (July-April 2006-07) by Rs. the share of direct taxes in total taxes(collected by the CBR) has increased from 18 percent to over 38. The development expenditure bore the brunt of structural adjustment of the 1990s as it declined from as high as 7.5 percent in JulyApril 2006-07. This increase has compensated much of the revenue shortages on account of sales tax and customs duties by Rs. respectively in 1990-91. its share has now been reduced to 18.5 billion and Rs.7 percent of GDP in 2006-07.1 billion in 2006-07 compared to Rs 1087.5 percent of GDP in 1991-92 t 2. Substantial decline in interest payments from as high as7.3 percent.07.3 percent of indirect taxes during the same period. respectively. The total expenditure remains more or less stable in a narrow band of 17 to 18. 1163. 11. CBR has exceeded the revenue target of Rs.interest expenditure has improved from 7. the share of development expenditure more than doubled from 11 percent to 28 percent in the same period. namely.4 billion and recorded massive growth of 50.1 percent higher than last year’s collection.3 percent. The share of indirect taxes declined from 82 percent to 61.4 percent to 41 percent of total taxes and from 17.5 percent.547. The direct taxes contributed most of the increase as they have surpassed the target by Rs.1 percent to 3.3 percent of GDP during the last seven years. Even within the indirect taxes.5 percent and 27. 22. The collection from custom duty used to account for 45 percent of total tax collection and 55 percent of indirect taxes in 1990-91.0%.5 percent of GDP in1998.

During July-March 2006-07. This expenditure is likely to pick up in the last quarter the overall fiscal deficit is targeted at Rs. The massive than the anticipated slowdown in imports growth from 30. During the year.7 percent of GDP for 2006-07. Total expenditure was projected to be 8.0 billion.6 percent higher than last year (2005-06).925.9 percent in 2005-06 to 53. The higher increase in current expenditures during the last two years is mainly on account of earthquake-related spending amounting to 0.6 percent to 10. with exports growing at an average rate of almost 16 percent per annum over the last four years (2002-06). During the first nine months (July-March) of 2006-07.8 billion or 3. Pakistan’s export growth witnessed abrupt and sharp deceleration to .3 percent during JulyApril 2006-07.19. Since public debt is a charge on the budget. Development expenditure is targeted at Rs.1 percent of GDP or 73 percent of the yearly target.6 percent of the target.5 percentage points in one year.272. Public debt was 627 percent of total revenue in 1999-2000 but has declined to 400 percent in end-March 2007 a decline of 227 percentage points in seven years is not a mean achievement. the overall fiscal deficit during the first nine months (July-March) of the current fiscal year stood at Rs. The Government is well placed to meet this target as fiscal deficit during the first nine months remained at 3. public debt has declined from 56. During the first nine month (July-March) of the current fiscal year total expenditure is estimated at Rs.4 percent of GDP for the fiscal year 2006-07. resulted in negative growth in dutiable imports with adverse implications for import related taxes. Pakistan continues to maintain fiscal discipline for the last several years. provisional estimates show current expenditure of Rs.19 billion for the current fiscal year (2006-07) which means it would remain almost stagnant at the level of 200506.56 billion or 17. 1126.1 percent of GDP. Current Expenditure is targeted at Rs. Earthquake accounted for sizeable amount of fiscal deficit and underlying fiscal deficit excluding earthquake expenditure is targeted at 3. Total expenditure is targeted at Rs.5 billion or 76 percent of the annual target.242 billion or 58 percent of the yearly allocation.3 billion which is 83. Public debt was 85 percent of GDP in 1999-2000 but has declined sharply to 53. its burden must be viewed in relation to government revenue.2 percent of GDP for 2006-07. External Sector Pakistan has recorded a laudable export performance during the last several years.4 percent in end-March 2007 a decline of 32 percentage points in just seven years is one of the significant achievements of the government.4 percent of GDP a decline of 3. 373 billion or 4. On the basis of the developments on revenue and expenditure front.435 billion for the year 2006-07. Despite further improvements in the international trading environment.1168.8 percent of GDP. development expenditure amounted to Rs. 1536. Beside sound macroeconomic policies pursued by the government the strong and sustained growth in world economy also contributed to impressive export growth. respectively owing to slowdown in imports.5 percent to 0. Public debt burden continues to decline sharply for the seventh year in a row on account of prudent fiscal management.

7 percent. made up articles (8. Pakistan’s import growth on the other hand. The rise in investment demand led to a massive surge in imports.6 billion or 12.6 percent and 14. Third. Fourth.7 percent while exports of petroleum products declined by 2. leather products.6%). In absolute term the overall exports posted an increase of $ 452.3 million) and other manufacturers ($ 296.1 million in the first ten months of the current fiscal year over the same period last year. readymade garments (6.9%). Prominent among these are export of knitwear (13.9 percent higher than last year.First.1 percent or$ 516.8 percent on the bed linen export also affected Pakistan’s competitiveness. the discriminating and tied-dumping duty of 5.8%). Exports of textile manufactures grew by 6. surgical equipments and chemical & pharmaceutical products registered negative growth. This decline is caused by a 2.2 percent.5 percent.2 percent. Exports of engineering goods increased by 6. Export of food group declined by 3. poor quality of cotton on account of contaminated cotton issue has also adversely affected the export of spinning industry.8 percent or $ 293. Exports were targeted at $ 18. Export of raw cotton. it appears that Pakistan’s textile exporters could not compete with its traditional competitors. The slower growth imports are likely to improve trade deficit as percentage of GDP compared to last years. all items including carpets. slowed to a normal level in the current fiscal year after surging at an average rate of 29 percent per annum during the last four years. sports goods.6%). 114.3 percent decline in exports of rice and fruits.46 billion to $ 13. Exports during the first ten months (July-April) of the current fiscal year are up by 3.6 million) leaving a net increase of $ 452 million. the rise in prima cotton price (a genetically modified version) which is imported from the US is a critical input for producing higher quality bed wear and fabrics. The less than satisfactory export performance of textile manufacturers can be attributed to a variety of factors. has made these items less . Though Pakistan continued to maintain its strong growth momentum in the current fiscal year.9 billion in the same period last year. In other manufactures’ categories of exports. Exports of other textile materials registered a high double digit growth of 17.2 million.9%). Of this increase. Exports of most of these items have been on the decline for quite some time. Export of rice declined due to lesser production caused by adverse weather condition which kept the domestic price higher. and towels (2. It was more profitable to sell within the country than to export. import growth has decelerated to a trend level for a variety of reasons including the pursuance of tight monetary policy during the year. Four years of strong economic growth strengthened domestic demand which triggered a consequential pick up in investment. cotton cloth and bed wear on the other hand registered a decline.1 million was contributed by textile manufactures while all other items’ increased by 64. This increase of $ 809 million was offset by a decline of exports of rice ($ 59. Second.less than 4 percent in the first ten months of the current fiscal year after growing at an impressive rate of 16 percent per annum until June 2006.4 percent – rising from $ 13. rugs & mats. cotton yarn (4.

These events include heightened political tensions. These five categories of exports account for 77. Pakistan needs to diversify its exports not only in terms of commodities but also in terms of markets.2 percent of total exports during the first nine months of 2006-07 with cotton manufacturers alone contributing 61. not responding to the policy challenges emerging on Pakistan’s economic scene during most part of the fiscal year 2007-08. Hong Kong. the fiscal deficit is expected to miss the target of 4. soaring global oil prices. less productive and carry higher maintenance cost. Pakistan textile products are low value added and of poor quality therefore fetches low international price. All these events have had adverse consequences for fiscal discipline. However. These are structural issues and must be addressed by the industry itself with government playing its role of a facilitator and providing some temporary financial assistance to address short term issues mentioned earlier. Germany. Pakistan’s labor is less productive because little or no efforts have been made to impart training or improving their skills. with several political and economic events transpiring unexpectedly. .0%) and sports goods (1. Pakistan’s exports are highly concentrated in few countries including the US. Pakistan’s exporters spend little money on research and development. These countries account for one-half of Pakistan’s exports with US alone accounting for 28 percent.competitive in the international market. leather. UK. these machines are power intensive. Pakistan export houses lack capacity to meet bulk orders as well as they are unable to meet requirements of consumers in terms of fashion and design. followed by leather (4.5%). the most important aspect was the nonresponsive stance on account of political expediency. Pakistan’s export suffers from serious structural issues which need to be addressed primarily by textile manufacturers with government playing its role of facilitating and providing some financial support on temporary basis. and the troubled law and order situation prevalent in the country. the international and domestic food inflation phenomena. rice (6.0 percent of GDP this year by a wide margin. Increased wastage of inputs also adds to their costs. Pakistan’s competitors are investing heavily and creating better economies of scale. that is. Because of the instability experienced at the onset of 2007-08.The degree of concentration has changed little from last fiscal year. It is generally argued that Pakistan’s exporters are uncompetitive in terms of adherence to contracted quality and delivery schedule. Fiscal Development 07-08: Fiscal Policy: Fiscal year 2007-08 proved to be a difficult year for Pakistan.6%).5 percent. synthetic textiles and sports goods. synthetic textiles (3. The machinery installed in recent years are old relative to Pakistan’s competitors therefore. Dubai and Saudi Arabia. cotton. Pakistan's exports are highly concentrated in a few items namely. Japan. rice. a slowdown in global economic activity. Heavy concentration of exports in few commodities and few markets can lead to export instability.6%).

respectively. the lack olfaction on the part of the government aggravated the fiscal situation as the high international price of oil was not passed on to the domestic consumers. 103 billion from non-tax revenues. This increase of Rs 69.1 billion. indicating that substantial tax policy reforms are still needed to broaden the tax base. fertilizer. In absolute terms.9 billion and 107. 8 billion. thereby surpassing the targeted level by staggering Rs 128. The adverse developments on the revenue and expenditure sides resulted in massive slippages in the overall fiscal deficit for the year 2007-08. the highest growth of 28. 25 billion less than the original target.2 billion. the overall fiscal deficit was targeted at Rs 398 billion or 4 percent of Gapes against 4.9% was recorded in the case of federal excise receipts. Among the four federal taxes. However. Current expenditure on the other hand was budgeted at Rs. reaching as high as $ 115 per barrel in May 2008 an increase of over 116 percent during the fiscal year. direct taxes (12. On the basis of revenue and expenditure projections. oil prices continued to rise at a greater pace. Firstly.7 percent higher than last year. as well as agriculture. It is also anticipated that the government may receive an additional Rs. including wholesale and retail trade.5 percent of GDP during 2007/08 as compared to an average of 18 percent for other developing countries. Against the target of Rs 398 billion or 4 percent of GDP the overall fiscal deficit is likely to be Rs 683.3% and 16. reaching to Rs. There are expectations that the FBR may fall short of its targeted level with total tax collections of Rs 1.5 . The indirect tax-to-GDP ratio stood at around 6 percent. while the direct tax-to-GDP ratio was calculated to be 4 percent. the oil subsidy is projected to rise to Rs 175 billion over shooting the targeted level by Rs 160 billion. A sum of Rs. Secondly. smuggling and mismanagement of wheat operations forced the government to import 1. The overall services sectors. are potential candidates for broadening of the tax bases. Two factors had a significant impact on the budgetary outlook. The collection of direct taxes has suffered a substantial shortfall during July-April FY 07-08.5%) and customs (11. The government recognizes the need to broaden the tax base and reduce marginal tax rates which would stimulate investment and production. Hoarding. Interest payments surpassed their targeted level by a significant margin. 503. Slippages in provincial tax revenues amounted to Rs. wheat and other foods.3% respectively.4 billion or 6.3 percent last year. power. 1875 billion — 11.2 billion. Gross and Net tax collection has increased by 12.Total revenues collected during the current year stood at Rs 1545. 1378 billion which was at previous year’s level. followed by sales tax (19. Consequently. Pakistan’s tax revenue-to-GDP ratio stood at only 9. 89.4%).7 million tons of wheat at all time high prices. Development expenditure was targeted at Rs 496 billion — 16. 483 billion.0 trillion—Rs.9 percent higher than last year.5 billion.5 billion from the budgeted revenues was mainly due to higher than targeted non-tax revenues. The total expenditure for 2007-08 was budgeted at Rs. large slippages have occurred on the expenditure side mainly on account of subsidies on oil. higher than the targeted level of Rs 1476 billion.5%). 375 billion was budgeted for interest payments in 2007-08 whereas they are estimated at Rs. these collections have gone up by Rs.

witnessed a modest growth of 6. In order to counter massive gaps between budgeted and estimated targets in current expenditure. mainly on account of yawning fiscal and current account deficits and a sharp depreciation of the rupee vis-à-vis the US dollar.4 billion is likely to materialize.2 billion which was estimated at 30 percent of GDP. An adjustment of Rs 100 billion was made in development expenditure. By end-March 2008 the public debt as percentage of full year GDP stood at 53. declined to 55. The increase in domestic debt mainly emanates from floating debt (27.1%) while the other two components. which stood at 85 percent in end-June 2000.8 percent came from non-bank sources.2 percent by end-June 2007 – a reduction of almost 30 percentage points of GDP in seven years. respectively. 2610. Against the budgeted financing of Rs 131 billion from domestic sources. and postpone development spending on the other. unfunded and permanent.8 percent in the first nine months (July-March) of the fiscal year 2007-08. the brunt of adjustments on the financing side fell on domestic sources. the bulk (82.7 percent. Public debt in rupee terms has increased by 15. The borrowing requirements increased from Rs 324 billion to Rs 683. Domestic and external shocks not only increased the size of the fiscal deficit but they also changed the composition of financing.2 percent) of financing came from banks while the remaining Rs 100 billion or 17. These developments had adversely impacted the external resource inflows which remained below the budgeted level.9 billion and stood at Rs. Pakistan could not complete the transaction of Global Depository Receipts (GDRs) of the National Bank of Pakistan and could not launch sovereign and exchangeable disbursements of multilateral banks and privatization proceeds were not materialized. only Rs 119. more damage has been done to public debt in the last quarter (April-June) of the current fiscal year which means a further widening of the fiscal and current account deficits. The declining trend in public debt is likely to be reversed in 2007-08. In addition to this. Within domestic sources.1 billion by end-March 2008 or 30. However.percent of GDP— the highest in the last ten years. the government made efforts to mobilize more resources on the one hand.4 percent.3 percent of GDP. some of the expected billion. The year 2007-08 is likely to end with public debt at around 56 percent of GDP – marking the first time in a decade to see a reversal in trends. External resource inflows were adversely affected by these shocks and against the budgeted level of Rs 193 billion. Most importantly. 3020. Public debt as a percentage of GDP (a critical indicator of the country’s debt burden). The outstanding stock of domestic debt rose by Rs 409. it increased to Rs 564 bonds.7 percent by end-March 2008 over end-June 2007. increased borrowing from domestic and external sources to finance the deficits.5 percent. . the borrowings from the State Bank of Pakistan (SBP) reached an alarming level.1 percent and 9. By end-June 2007 total domestic debt stood at Rs.4 billion—an increase of 111 percent. The domestic debt had increased by 15. Thus. and a sharper adjustment to the exchange rate. the money supply growth for the year 2007-08 is expected to breach the target of 13. Consequently. Furthermore.

70.3 percent.484.5 percent rise floating debt which increased by Rs. The net collection of federal excise stood at Rs 90.6 billion in the corresponding period of last year.1 percent or Rs. Indirect taxes grew by 18. The sales tax collections grew by 22. Tax Revenue collected by the FBR amounted to Rs. All meaningful efforts to expand revenues particularly by broadening the tax base will only work in the medium-term.1 percent of the projected GDP for 2008-09 which is consistent with annual fiscal deficit target of 4. The net customs duty collection has inched up from Rs. The main contribution came from 17.5 percent.1 billion during July-Marc2008-09. showing an increase of 27. the growth in domestic reaccelerated reflecting non-availability of financing through external sources.2 percent and stood at Rs. Unfunded debt witnessed a grow to 15.2 billion in 2008-09.2 in Jul-March 2008-0mainly because of uncertainty in the financial market and very attractive rates offered by NSS schemes.2 percent during Jul-April 2008-09 and accounted for 62 percent of stake in overall tax revenue.114.9 billion as against Rs. Resultantly. The government remained well ahead of the SBP financing limit allowed by the Economic Stabilization Program. .763. The net Direct tax collection was estimated at Rs. 332.Fiscal Development 08-09: The government has decided in the economic stabilization program to adhere to the fiscal deficit target reverently and during the first nine months (July-March) the fiscal deficit hovered around 3. The stock of domestic debt grew by Rs. This strong growth in the domestic derelicts non-realization of privatization proceed and reduced availability of net external financial nude to increase in external debt repayments maturing stock of foreign currency bonds.1 percent. The overall FBR tax collection remained less than satisfactory and actually witnessed deceleration in real term.7 percent higher than the net collection of Rs.0 billion during Jul-April 2008-09 as against Rs.358.6 billion in comparable periods last year. The fiscal improvement in the first nine months (July-March 2008-09) has largely based on reduction of oil subsidies and a cut in development spending.9 percent during JulApril 2008-09.293. the FBR tax collection to GDP ratio is likely to deteriorate around 9 percent of GDP as against the target of bringing it in to the vicinity of 10 percent of GDP.154. The financing patterns of fiscal deficit remained dominated by the banking system which financed 85 percent of the fiscal deficit and only 15 percent were financed by the non-bank sources.898.9 billion in 2007-08 to Rs. which is 17.6 billion in the corresponding period of last year thereby.44 billion.286 billion the stock of permanent debt has increased bRs.5 billion against the target of Rs 496 billion which implies a growth of 16.117.6 billion during the first ten months (July-April) of the current fiscal year. Despite a decline in fiscal deficit in the first nine months of 2008-09. thereby showing modest growth of 2.

In large part. the Seventh National Finance Commission (NFC) Award was successfully concluded after a lapse of 19 years. amounting to over 60% for some consumer categories. the adverse shift in the energy generation mix towards fuel oil. The heavy recourse by the government to borrowing from the domestic banking system led to fears of crowding out of the private sector. It led to sharp cutbacks in outlays for the public sector development program. During the outgoing year. legislation was laid before the national as well as provincial assemblies to introduce an integrated. there was an unintended consequence: interest rates moved upward as a result. tax collection has risen nearly 14% for July to April 2009-2010. developments in public finances. In addition. to substantial outlays on electricity subsidies. this is due to two adverse developments in operation for much of the last over one year. Effective the from July 1. Second. Against a budgeted 4. All told. and despite a difficult economic situation. the 7NFC Award will more than double the quantum of annual resource transfer to Constitutional the Provinces. the developments outlined above are likely to result in a moderate over-shoot of the budgeted target for the overall fiscal deficit. First. Lower than budgeted external assistance pledges also compounded difficulties in fiscal management during 2009-10. has been accompanied by a near-doubling of international oil prices between January 2009 and April 2010. electricity tariffs have still not reached cost-recovery for the public sector utilities. This requires needed amendments to the law at both national and provincial levels. the basis was laid for two fundamental. With the devolution of expenditures to the Provinces under the 18Amendment set to become effective from 2011-12. Nonetheless. lower rainfall reduced power generation from the dams. Despite a sharp upward adjustment over the past two years.9% of GDP. in large part. which had been pitched at an unrealistically high level. as compared to the corresponding period of 2008-09. the interim period is likely to cause a degree of strain on federal finances. however. however. in a major policy effort to broaden the tax base. Second. the revised outturn in 2009-10 is projected to be 5. as well as horizontal (between Provinces) distribution. First. After a sluggish start. Key elements include concerns about the lacunae introduced in the legal framework over time. potentially ―game-changing‖. However this was obviated by weak credit demand from the private sector. As a percent of GDP.Fiscal Development 09-10: Pakistan’s public finances have come under increasing strain over the past two years due. tax collection remains low. broad-based and modernized system of the GST (leading to a Value Added Tax (VAT)) as originally intended in 1990. .1%. as well as improved liquidity in the banking system. with a fundamental shift in the basis for determining the vertical (from Centre to Provinces). The continued hemorrhaging of fiscal resources by the power sector is also partly a result of unchanged end-user tariffs between 2003 and 2007. 2010.

a proposed law to implement a broad-based Value Added Tax (VAT) with minimal exemptions from July 1. An allocation of Rs 70 billion has been made in the Federal Budget 2009-10. involving a broad range of policy actions across sectors. The new development strategy seeks to foster sustainable and more equitable growth by means of structural improvements in the productive sectors of Pakistan’s economy. These perennial weak links have remained unaddressed in the past. which has inevitably produced boom-bust cycles followed by a balance of payments crisis. the government has embarked on a fundamental change of the development paradigm. 2010 has been presented to Parliament. easing the budget constraint assumes even greater urgency. with verifiable and timely refunds. Economic reform: Cognizant of the limitations of the growth strategy followed in the past. To this effect. in conjunction with the need to put in place targeted social safety nets. and include a low. water reservoirs. including the increasing need for maintenance of existing capital stock cannot be postponed for much longer and will require vast resources. the government has launched the Benazir Income Support Program (BISP). ratio of tax collection to GDP. and provincial programmers such as the Sasti Roti scheme. leakages in public sector expenditure. which could possibly have been weakened further by the new NFC award. Zakat Fund. with the aim of targeting 5. although the estimates for the coming year by leading tax experts are appropriately modest at around 0. The size of BISP makes it the largest social protection scheme in the country’s history. Addressing two decades of under-investment in critical sectors of the economy – social sector. and. weak incentives for improvements in provincial finances. It is estimated that the move to VAT could yield up to 3 percent of GDP in additional revenue over a period of three to five years.9 percent in 2008-09). Under Social Protection.5 million poor and vulnerable Households in Pakistan with a cash transfer of Rs 1. In addition. The current status of some of the important reforms is as under: Raising the Tax-to-GDP ratio is a key pillar of the government’s economic strategy.000 per month to each. and addressing concerns with rent seeking and governance in the FBR. A Cabinet Committee on Restructuring .modernization of the tax administration to ensure arms length dealing with taxpayers. other measures such as improving tax administration and reinstating tax audits have been taken. Looking ahead. physical infrastructure. The cumulative effect of these policy measures is expected to be an increase of Pakistan’s Tax-to-GDP ratio to 13 percent by 2013 (from 8.7 percent of GDP. and it works in conjunction with other safety nets such as Bait-ul-Maal. Meeting the expected expenditure requirements in the medium term will require redressing the fundamental weaknesses in the structure of public finances. and declining. will further add to the resource requirements. Catering to a rapidly rising population.

electricity tariffs have been raised between 40-55% in less than two years. This Award greatly augments the quantum of resource transfer from the Centre to the Provinces. in an effort to reduce the level of subsidies absorbed in the budget. adjustment in tariff for changes in fuel prices for power generation has been made automatic. while simultaneously moving to a full cost-recovery tariff for the power utilities. Although. The eventual aim is to turnaround these PSEs into profitable. rationalize expenditure and to better insulate the economy from shocks. particularly from SBP. The original estimates had to be revised in the light of these unprecedented happenings. self-sustaining ventures under PublicPrivate Partnership mode. the constraint of zero SBP borrowing on a quarterly basis has been fully adhered to. Government now aims to restrict banks’ investment in government securities only to the extent required for meeting statutory requirements. non-realization of auction of 3-G license and several petroleum related incomes which were affected due to non-resolution of circular debt problem in full. over time this imbalance has been corrected and the share of non-bank borrowings has been significantly increased. and the first for the last 19 years. PEPCO. For this purpose extensive marketing efforts are taken to encourage sell-down by banks of government securities to non-bank institutions and individuals while the system of national savings schemes is .5 percent of GDP in the first nine months of the current fiscal year.16 billion compared to the level outstanding at end June. Pakistan Steel Mills. NHA) with a view to stop leakages caused by annual losses amounting to approximately 1. initially a relatively higher reliance had to be placed on bank borrowings. TCP. Fiscal Development 10-11: FISCAL DEVELOPMENTS: Fiscal performance – both revenues and expenditures – have been affected by the floods and the policy adjustments in the face of global rise in prices of energy. Part of the increase in the fiscal deficit is explainable on account of higher security related expenditures and the floods. Preliminary data suggests that the fiscal deficit is likely to remain between 4-4. 2010. the Centre will also devolve some major functions/expenditure heads to the sub-national governments in line with the provisions of the 1973 Constitution.(CCoR) has been formed to restructure key Public Sector Enterprises (PIA. The emerging fiscal situation has reinforced the urgent need to broaden the tax base. In conjunction with the higher resource transfer to the provinces. At the End of March. A number of steps were adopted to improve debt management which essentially focused on reducing reliance on bank borrowings. Beginning with the JanMarch quarter. Under reform of the power sector. delay in adoption of tax measures. USC. however significant contribution to this increase came from higher subsidies. The government successfully concluded the Seventh National Finance Commission (NFC) Award – only the fourth in Pakistan’s entire history. Railways. Under a new Act of parliament.5% of GDP. SBP borrowings were recorded at minus Rs.

1667 billion to Rs. Fiscal Indicators: . The delayed taxation measures led to the revision of FBR target from Rs. though formidable. as part of fiscal consolidation a major effort was launched in March whereby three tax measures with a revenue potential of Rs. with slowed economic activities. These included the imposition of a one-time floodsurcharge on income tax. including a decline in the real growth rate. Accordingly. The revised FBR target of Rs. a need for mid-course adjustment was felt.53 in a quarter were adopted.1588 billion. Accordingly. the growth in revenues in the first nine months was below expectation.1588 billion. remains on track. an additional excise duty of 1% on some selected luxury items and removal of exemptions on many goods subject to sales tax. With these measures part of the revenue lost in the first three quarters due to delay in tax measures will be recouped and the impact of reduced revenues on fiscal deficit.strengthened for mobilization of non-bank resources from the individuals. However.

Fiscal Indicators: 2011: .

The allocations of the federal programme included Rs 100.4%) for the social sectors and balanceddevelopment and Rs 4.9% of GDP) with a Federal Programme of Rs 204 billion. 2005 at Rs 272 billion(3. The overall position is given in Table -4.3% of the GDP.3 billion (2. 6 billion through securitization of toll revenues and other receipts.  Public Sector Development Program me 2006-07: The PSDP 2006-07. 4. The NHA has also been asked to raise additional Rs. The WAPDA is likely to spend Rs. including foreign assistancecomponent of Rs 41 billion.3 % of projected GDP (mp) which is higher than the last year’s PSDP / GDP ratio of 3. being the 2nd year of Medium Term Development Framework (MTDF) 2005-10. The size of the Federal PSDP 2006-07 is Rs 270 billion (including foreign aid component of Rs 36. achieving Millennium Development Goals (MDGs). It was also assessed thatprovinces would spend Rs.8billion (49. the Earthquake Reconstruction expenditure would be Rs 50 billion.1.4. The Ministry-wise summary of PSDP 2006-07 is at Annex. minimizing wastages and ensuring sustainable development. equitable development of regions and social groups. The PSDP/GDP ratio would be gradually increased and at the end of terminal year of MTDF 2009-10 it would reach 6. The provinces are expected to spend Rs 115 billion including foreign aid component of Rs.7 The federal size of PSDP of Rs. has been formulated to achieve national objectives envisaged in the MTDF such as reducing poverty. To this end adequate investments have been proposed in human resource development and physical and technological infrastructure. Thus the total investment including outside PSDP by WAPDA & NHA would be Rs 470 billion. Rs 98.9 %.9 billion (48.7 billion through their ADPs. 68 billion through their Annual Development Programmes.2%) for the production sectors.1 . 270 billion for financial year 2006-07 represents 4.PUBLIC SECTOR DEVELOPMENT PROGRAMME: 2006-07  Review of the PSDP 2005-06 The Public Sector Development Programme (PSDP) 2005-06 was approved by the National Economic Council (NEC) in its meeting held on May 27.30 billion from its own resources outside the PSDP.5 billion and operational shortfall of Rs 20 billion) with an increase of 32% over 2005-06. In addition. Its strategic thrust is to facilitate the development of human capital and private sector as the engines of growth.4%) for infrastructure.26.

good governance. as per fiscal space available with the government. The public sector corporations mobilize their own resources. poverty reduction. The Public Sector Development Program (PSDP) is the main instrument for providing budgetary resources for development . removing regional disparities and improving quality of life of the people both by the Government entities and public sector corporations. For this purpose. employment generation. the funds are allocated by the federal. in the national budgets. provincial and local governments to development projects and programs. expansion and modernization of socio-economic infrastructure.PUBLIC SECTOR DEVELOPMENT PROGRAMME: 2007-08 Public investment is made for provision.

By continued efforts of the government through strong economic management. • initiation of important new approved projects. • implementation of public commitments made by the President and the Prime Minister . empowering women and minimizing wastages.3 percent by 2009-10.projects and programs. ensuring equitable distribution of development funds across regions and various social groups. a level of 4.5 percent in 1991-92 to 2. The PSDP 2007-08 has been formulated with a view to avoiding a thin distribution of resources and the following principles have guided the resource allocation in the PSDP: • completion of on-going projects. • initiation of un-approved but crucial projects. sufficient fiscal space has emerged which led to the stability of macro-economic framework. The PSDP 2007-08 has laid due emphasis on maintaining momentum of growth. The MTDF emphasizes greatly on PSDP and seeks to increase the PSDP as a percentage of the GDP from 3. such as reducing poverty.1).1 percent in 2004-05 to 6. achieving the MDGs.3 percent of GDP has been achieved in the year 2006-07. Through consistent increase in the PSDP size. the PSDP has declined sharply from 7. realization of core MTDF objectives.5 percent in 1999-2000 (Figure 5. As a percentage of GDP.

and • preparation of projects conducive to creating environment of knowledge economy PUBLIC SECTOR DEVELOPMENT PROGRAMME: 2008-09 The PSDP 2008-09 marks an important shift in Government priorities by laying emphasis on poverty alleviation while maintaining the momentum of growth. The five major priority areas are: • • • • • comprehensive support program for poor and vulnerable groups. .• equitable/fair distribution of funds among the provinces. uplift of Baluchistan. NWFP and Special Areas. reviving growth in agriculture and manufacturing. overcoming water and energy crises. and Building up human resources to compete in the global economy.

PUBLIC SECTOR DEVELOPMENT PROGRAMME: 2009-10 The strategic thrust of the Annual Plan and PSDP 2009-10 has been derived from Nine Points Economic Agenda of the government. Major elements of the strategy are: • • • Ensure economic recovery consistent with stabilization. power and transport for enhancing competitiveness. Address critical infrastructure gaps in water. . Maintain momentum of agriculture growth together with support policies for revival of industries.

In allocation of funds across sectors and projects for PSDP 2009-10. In addition to this Rs 25 billion would be spent by ERRA for rehabilitation and reconstruction of Earthquake affected areas.• • • • • • • • • • Increase reliance on indigenous energy resources. which is higher by 14. following guiding principles in order of priority were adopted by the APCC. Achieve Millennium Development Goals and reduce poverty through a comprehensive social protection system with an exit strategy. . The development requirements of provinces were estimated at Rs 200 billion. Initiation of important new approved projects. Keeping in view of the above principles the APCC finalized its recommendations and proposed the total size of PSDP at Rs 595 billion. Facilitate balanced development in the country by reducing regional disparities.8% than PSDP 2008-09. Only unavoidable bricks and mortar projects be started. Directives/announcements would be honored. The NEC on the recommendation of the APCC subsequently approved the total size of PSDP 2009-10 at Rs 621 billion (including foreign loan of Rs 72.0 billion) with an operational short-fall of Rs 21 billion. Un-approved important projects should only be financed with token allocation. Social sector allocation should be protected as far as possible. and Rehabilitation and reconstruction of conflict affected areas. Out of this the federal government programs amount to Rs 395 billion with an operational short fall Rs 20 billion. Maximum allocation to projects which can be completed during 2009-10 followed by projects that are likely to be completed in the next two years.

For reconstruction and rehabilitation works. livestock. agricultural land & products. The catastrophic floods of July . houses in both the rural and urban areas.PUBLIC SECTOR DEVELOPMENT PROGRAMME: 2010-11 The total national development outlay stood at Rs 714 billion (4% of GDP) with federal program me of Rs 296 billion (including Rs 16 billion for ERRA) – with foreign exchange component of Rs 38 billion and Rs 424 billion (initial budgeted size was Rs 373 billion) for provincial programmers to be undertaken through ADPs. budget for ERRA was increased . Accordingly. Federal PSDP 2010-11 was also reduced from Rs 280 billion to Rs 180 billion. were badly damaged across the country. the government took various measures for financing flood related works including support from international donors.1 where infrastructure and social sector received major shares respectively at 44% and 53%. 2010 wrecked havoc on people of Pakistan almost in all parts of the country that has caused heavy damages to life and property. The rural economy particularly agriculture sector was affected.August. the provinces slashed their development programmes from Rs 424 billion to Rs 266 billion. Broad sect oral break –up of federal PSDP of Rs 296 billion for 2010-11 is indicated in Table 4. Physical and social infrastructure. However.

Contractual obligations at international level be honored. FATA. Ministries / Divisions / Executing agencies were advised to prioritize their projects for priority and protection as under: Projects which are fairly at advanced stage of completion Projects of less-developed areas (Baluchistan.          All executing agencies were advised not to initiate new projects unless very important with prior approval of the Planning Commission. Gilgit – Baluchistan) and HEC Maximum possible protection to social sector projects. Planning Commission took the following steps to rationalize the development expenditure. . Bricks and mortar projects be discouraged Slow moving projects with less than 30% expenditure be deferred As a result of the above. revised sectoral allocations of federal PSDP 2010-11 are Presented in Table 4. AJ & K.from Rs 10 billion to Rs 16 billion during 2010-11. To manage this reduction.1.

development priorities have been shifted from financing local nature projects of provinces/districts to national level projects of Infrastructure in back-drop of 18th Amendment and 7th NFC Award. 2011 to 26thApril. innovations and technical know-how. Under restructured procedure. Indicative Budget Ceilings (IBCs) of each Ministry/Division were discussed by the high powered Priorities Committee co-chaired by the Secretaries. The thrust of strategy is to focus on software‟ of economic growth (increase competitiveness to increase total factor productivity. Their development programmes should reflect the highest sectoral policy priorities. Ministries / Divisions have been empowered to enhance efficiency and effectiveness of Government’s spending. substantial resources are needed to be injected into this sector to realize targets of other sectors of the economy such as agriculture. Advance indication of resources help to plan economic activities during each Fiscal Year. the federal Government has also adopted three year Medium Term Budgetary Framework (MTBF 2011-14). Federal PSDP 2011-12 also emphasizes division between provincial and federal subjects. Keeping in view the increased throw-forward of approved projects and reduction in the size of PSDP 2010-11 by Rs 100. federal budget has been projected for medium term period of three years.OUTLOOK OF UBLIC SECTOR DEVELOPMENT PROGRAMME FOR 2011-12 Federal PSDP 2011-12 has been formulated in line with objectives of Economic Growth Framework. Finance. It articulates strategy where private sector investment could greatly be encouraged by reforming and strengthening economic governance through reforms in institutions like taxation system. current as well as development budgets are estimated as ―Indicative Budget Ceilings (IBCs)‖ against the requirements of various Ministries/Divisions. Programmes and initiatives have been . skilled human resources) so as to provide an environment in which the „hardware‟ of economic growth (physical infrastructure) could work productively. civil services. manufacturing and services. 2011. commercial. judicial system. The role of Ministries/Divisions has since been enhanced to focus on service delivery. generate maximum demographic dividends. Besides. Planning & Development and Economic Affairs Divisions from 22nd April. Under this system.00 billion. The Finance Division indicated the total development budget size of Rs 280 billion for federal component for financial year 2011-12. The Priorities Committee stressed on need to focus on rational spending of public funds preferably against on-going projects for delivery of speedy socio-economic benefits to the people. For productive outcome under PSDP investment. modernization of cities being locomotives of growth. To control looming energy crisis. MTBF has been adopted with a view to maximize utilization of constrained public funds for PSDP focusing on ―out-put based budgeting system‖. incentives based entrepreneurships. Accordingly. the Planning Commission estimated the requirement of Rs 365 billion for the next year PSDP. reforms in institutions. addresses economic governance issues.

entrepreneurship. 2012 and June. Special Areas Program (AJ & K. 2013 respectively. Therefore. the first and second priority of the Government was to allocate funds to the projects of energy. Gilgit – Baltistan & FATA) with the aim to bring these areas at par with the developed areas of the country. technological know-how. Physical Planning & Housing. 2011. To finalize the PSDP 2011-12 on more realistic grounds. Priorities Committee issued the following guidelines to Ministries / Divisions for setting priorities while allocating funds to their projects within the indicative budget ceilings:      Projects nearing completion be fully protected Contractual bindings in projects with foreign donors be obliged Development Packages be protected Only new approved projects falling in government’s priorities Projects with 30% expenditure may be deferred unless very critical In view of squeezed financial envelope of federal PSDP with huge throw-forward liability. roads. From current financial year. and regularization of business and modernization of cities as locomotives of economic growth. provincial projects/programs have been shifted to the provincial governments. It was decided that Federal Government would finance health sector vertical programs. . Care has also been taken of core social sector projects of Health. Special Programmes (PWP-1 and PWP-II) which have direct impact on the socioeconomic conditions of the people. Education. 2011. water conservation and augmentation.encouraged for bringing innovations. To this effect meetings were held with provincial government son April 2 & 4. It was also decided that Federal Government would finance Population Welfare programme and projects initiated under directives during the period of current NFC award. railway and ports sectors being the primary responsibility of the Federal Government which are likely to be completed by June. Governance. Three types of projects were placed before them:    Vertical programs Projects by location Projects under directives Provincial Governments requested that though subject of health and population has been devolved to the provinces but Federal Government may continue financing vertical programs and projects/programs being implemented under Directives. Emphasis has also been laid on modernization of Science & Information Technology infrastructure in the country. after abolishment of Concurrent Legislative List. This matter was placed before Council of Common Interests in its meeting of April 28.

provincial and local governments. the investments made by the public corporations and various authorities and entities of the federal. these have been transferred to the concerned provinces with their consent. These projects would be financed by provincial Governments through their ADPs. As far as other projects are concerned. The federal allocation this year is higher by 59% compared to 2010-11. Of this. with Rs 10 billion allocation for ERRA.8 billion). 2011 at total size of Rs 730 billion (3. The PSDP 2011-12 was placed before the National Economic Council which approved it in its meeting held on 28th May. 62% higher than last year revised estimate of Rs 266 billion Public Sector Development Programme  Public investment is a broader concept which includes the Public Sector Development Programme (PSDP).  . federal programme is of Rs 290 billion (including foreign assistance component of Rs 36.4 % of GDP). 58% higher than the revised allocation of Rs 462 billion. The PSDP is financed out of the budgetary resources and corporations normally mobilize their own resources.appropriate allocations have been earmarked to cater for the requirement of these programs/projects. The provincial development programme is Rs 430 billion.

. PSDP will act as a catalyst for functioning markets andthe maximum exploitation of opportunities created by globalization.Objectives and Strategy The Public Sector Development Programme (PSDP) is the main instrument for providing budgetary resources for development projects and programmes. Its strategic thrust is to facilitate thedevelopment of human capital and private sector as the engines of economic growth.

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