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Public Expenditure

Group Introduction 

Syed Hassan Ali shah Muhammad Ijaz Muhammad Bilal Syed Ilyas Sami

Public Expenditure   

Public expenditure is an expression of people's will and needs managed through political parties and institutions Government collect revenue from on one side in the form of taxes and spend it on other side in the form of Public Expenditure for the welfare of public Expenditure should be made on the basis of public wills and need for their well being

Categories of Public Expenditure
1. 2. 3. 4.

Current expenditure Capital expenditure Transfer payment Debt interest

Current Expenditure   

Spending on day to day running of public services like hospitals, schools, sanitation, police and military departments etc Current expenditure are also involve in environment protection like salaries paid to workers, purchase of equipments and rent and fuel consumption From above discussion it may be concluded that current expenditure are day to day spending on provision of different facilities provided by public sector to nationals

Capital Expenditure   

All those expenditure which are made for the provision of capital like construction of new hospitals, roads and other infrastructure works Capital expenditure contributes up to a large extent towards the development of the country because capital provide strong infrastructure and infrastructure are the back bone of a countries economy Govt. purchase capital from national or international markets and use it for the welfare of public

Transfer Payments  

Transfer payment is the amount paid by govt. to individuals of country in return of which they are not supposed to pay anything to govt. Also called negative taxes Example: Pensions, subsides, rewards and scholarship paid by government to the individuals of the country

Debt interest  

This is payment of interest to the holders of the government debt, e.g. the payment of interest to the holders of national saving certificates, government bonds and lenders Budget deficit Budget surplus

Function of Public Expenditure
Normally the function areas of public expenditure depend upon the political philosophy of the country 1. 

The provision of public and merit goods and services
A large part of public expenditure is used to provide public and merit goods. These goods may be in the form of schools, hospitals, roads and other welfare projects Provision of public and merit goods and services are essential for running of economy and for continuous survival of public Public goods Merit goods  

2. Improving the Efficiency of Allocation of the Resources   

Govt. Spend money in such a way to insure the efficiency of resources being spend in order to improve the performance of all the sectors of economy If the expenditure is allocated inefficiently than it will be wasted and will not generate required outcomes Efficiency is more important than allocation of expenditure

3. Social Security   

Social security covers a wide range of benefits in the form of money grants. These transfers include state retirement pensions, child benefits, income support, and family credit and sickness benefit Not in Pakistan but in many other countries govt. provide unemployment funds and also assist old and disabled persons of society This criteria save number of families from miseries and hardships which they have to face due to decrease in their income by any misfortune

Role of Public Expenditure 

It contributes to current effective demand It increases the public endowment of goods for everybody It gives rise to positive externalities to economy and society, through its capital component Public expenditure also contributes toward the development of the economy Public expenditure provide social security Public expenditure creates business cycles

Muhammad Ijaz 

Influencing on public spending Infrastructure expenditure Military expenditure

Influencing on the level of Government Spending

Cyclical Influence
Changes in the level of (recession,economic boom) economic activity


Demographic Influence
Increase in age of population(health and pensions expenditure increase)


Social changes 

Decline in family setup(Gov spending on social security and health increase), one parent family Crime level Richer society demand more



Demand for Private Goods When a demand for a range of private goods increases, demand for complementary government financed goods and services will rise. Example: car ownership affects road building Changes in Technology Improvements in technology have made more expensive operations such as multiple organ transplants possible, thereby increasing health care expenditure. Spending on education has risen with the purchase of computers by schools.



Increase in Real Wages Health care, police and education, for example, are labor intensive. So increase in wages, if not offset by productivity increases, will raise government expenditure. The Risk of the Conflicts Some of the resources which had been use in the defense industry were transferred into the production of the civilian goods and services which add more directly to welfare

Macro-functions Public Expenditure on Infrastructure
High share of GDP  Spending on infrastructure is necessary for development.  Communication channels(transport system acts as a backbone of economy)  New markets(opportunities) 

Influencing factors: 

Per capita income New technologies Population Urbanization Rural areas

Infrastructure leads to:  


Its spending leads to urbanization rate, labor force participation. Positive influenced sectoral imbalance between rural and urban areas. Education(people approaches to nearest big cities) Health(provision of gas, electricity, hospital) Effectiveness(no wastage of resources) Industrial revolution

Military System
Personal, operations, maintenances. Procurement of weapons, military construction.  High share of GDP 

Influencing factors:
Technology  Competition  Its a need of the country, but should be manage effectively not as a burden. 


Earn foreign exchange(selling)



Education is an indicator of development and growth of a country. Also the education moves an economy towards the technology advancements and new scientific researches. Literacy rate in developing countries is 99% while in less develop countries it is just 4550%.

Federal Ministry of Education 

Develops the national education policy. Provides guidance to the provincial education departments and textbook boards. Sets teachers¶ pay scales. Define requirements for teacher qualification to improve the quality of education. Develop a curriculum at the national level.

Provincial Department of Education 

Responsible for teacher training Ensure access to schools for both girls and boys Influence the federal government in developing a good quality curriculum Set-up a criteria to determine the qualification of teachers

District Education Department 

Responsible for allocating resources to different branches of education at the local level Prepare the annual budget for primary and secondary education Manage teaching and non-teaching staff Provide funds for establishing new schools Regular school inspections to ensure quality Teacher evaluations Planning, monitoring and evaluation of the district education system e.g. Financial records etc

Table Projected Budgetary Expenditure on Education
Year Expenditure (Rs. Million) 78,613 88,842 102,375 116,036 135,049 % of GDP 1.96 2.01 2.01 2.15 2.25

2002-03 (actual) 2003-04(Actual) 2004-05Actual) 2005-06(Budgeted) 2006-07 (projected)

Health care 


Provision of safe drinking water, food and concepts of primary health care are also started in rural areas. Traditional government-provided health care services are changing to Advanced and expensive methods. Awareness about health related matters (Public Awareness) like Advertisements. Government policy that continued to fund health sector for new projects launching e.g. polio etc. Doctors, Paramedics, Hospitals with beds, new equipments and machines. 


Growth of education, especially female education. Subsidized medical and nursing education supplying. Conducting, administrating reports, surveys and different campaigns. Public health authorities are also concerned about elevation of epidemics like cholera, measles and other virus infectious diseases.






Infrastructure expenditure that is---energy and water supply, transport and telecommunications, sanitation and waste facilities, flood protection and drainage, and other general-purpose urban facilities. Irrigation is also touched on. Social infrastructure¶ which would include facilities such as schools, hospitals and cultural centers. Most infrastructure systems consist of both trunk/bulk-supply installations and local distribution/collection networks 

Key Areas 


Government mainly look on these areas: Rural Poverty, Women poverty and Ethnic Minorities and poverty. Institutional Reforms: Use of infrastructure assets and on easing investment continue rapid spread in poverty elevation. Effective competition in service(employment) provision is the key factor in securing wider Expenditures. Local government are managing municipal development and finances. Development Goals in Education and Health, and attention are given as much to social as to economic initiatives . Economic analyses focusing: costs and prices, production and employment volumes, education participation, health improvements, etc. The very large subsidies. Subsidies effectively targeted to the poor. Old age benefit organizations are made are also found in most countries.



Firstly paying large at Infrastructure for enhancement of investments Conducting campaigns, surveys and several programs. Catching up foreign investors and enhancement in form of FDI. Provision of best environment conditions to the investors. Subsidizing exports and production for enhancement. Provision of Tax free zones to industrialists. Private and public partnerships. Governance and economic reform program. Sustain higher levels of economic growth through greater investment and employment creation. SME sector development e.g. in Pakistan SMEDA is working for that purpose. 


Privatization. Trade, Export Promotion and Industry Program. Technological revolutions and Research. Exploring possibilities of sub regional cooperation in other sectors and areas. Giving incentives to Banking sector for loaning in industrialization and agriculture reforms. Expenditures on several programs with different names in different countries: Energy Sector Restructuring Program Justice Program Agriculture Sector Program Loan Decentralization Support Program The Rural Finance Sector Development Program Financial Markets Governance Program Human Resources Development programs


Public Expenditure on Fight against Drugs
Public expenditure in the field of drugs, what is usually called µthe drugs budget¶ is composed of two types of expenditure:

Direct Expenditure
Public expenditure directly labeled as drug-related are the resources spent by public authorities and generic services (police, customs, public health institutions etc.) to deal with questions arising from drugs.

Indirect Expenditure
Calculating the level of µindirect expenditure¶ is based on a

complex estimate of the proportion of activity each public authority carries out in the field of drugs control.

Direct Expenditures
i. Health care

Public spending in matters of health care includes all public spending devoted to the care of the consequences of drug consumption and related diseases, this being the cost of free care in specialized centers operated by the governments. ii. Law enforcement Police forces. Customs drug-related offences. Prosecution of drug offences (judiciary system). Imprisonment related to drugs. 


Foreign Aid
Developed economies are contributing a lot in terms of foreign aid. The factors including openness to foreign trade, high savings rates, stable macroeconomic policies, high literacy rates, favorable demographic characteristics and High GNP figures are the things which enable the country to go for Aid e.g. U.S and Japan.

Areas of Foreign Aid 

Governance Agriculture and Rural Development Health Education Infrastructure Environment Gender Governance

Key Sectors of the Aid Program 
Communication and Information  NGO¶s and volunteer Programs 
           Non Government Organizations (NGOs) Volunteer Programs Emergency Assistance Other Humanitarian Aid Multilateral Organizations Multilateral Development Banks United Nations Organizations International Health Programs International Environment Programs Commonwealth Organizations Direct Assistance Program Scholarship Scheme 

Emergency and Humanitarian programs  Global Programs 

Cross Regional Program

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