Public Budgeting & Finance

Public Financial Management in Pakistan

Budgetary Process in Pakistan
Approaches to Public Budgeting
 Recommended Readings
• Public Administration:
An Action Orientation
By Robert B Denhardt
– relevant chapters: 1, 2, 2nd Edition
4,5
• Public Administration.
By Sarfraz Hussain
Ansari Published by
NOA
• Public Administration
by M Laxmikant
 Financial Administration
• Finance constitutes a vital part
of govt. activities
• Financial administration refers to
– Formulation of Fiscal Policy
– Fiscal Operations Management
– Fiscal Accountability
• Public budgeting & financial
management
– Allocation of limited resources
– To meet ever increasing
demands of the citizens
– Tool for national resources
planning and control
– To fulfil National, Regional,
Global commitments/goals
Fiscal policy refers to the
use of government spending
and tax policies to influence
economic conditions,
especially macroeconomic
conditions.
These include
• aggregate demand for
goods and services,
• employment,
• inflation, and
• economic growth.
3
 Financial Admin: Importance
• Determines and measures the performance of the
govt.
• Govt. intervenes in the market in order to manage
market operations
– Regulates the Financial market, stock market and
money market
• Provides social support and protection to the
needy
• Fulfills macroeconomic development agenda
• Intergovernmental fiscal transfers
• Climate financing and govt. fiscal operations
https://www.finance.gov.pk/survey_2023.html
 Public Financial Management
System in Pakistan For Efficient
Fiscal Operations

Revenue Expenditure Public Debt Cash Flow

Management Management Management Management
FBR MoF, CGA, FD , EAD SBP
Spending Units

Monetary Policy
Tool
Fiscal Policy Tools

5
FBR: Federal Board of Revenue
Author’s construction CGA: Controller General of Accounts
FD: Finance Division; EAD: Economic Affairs
Division
SBP: Sate Bank of Pakistan
 • Revenues-Expenditure= +ive budget surplus

• Total receipts – total Expenditure= -ive budget deficit

• Revenue-Expenditure= 0 Balanced budget

• FY22-23 (May-2023) • Policy Rate of SBP: 22%

• Inflation 29.9 %, • Balance Of Trade Deficit

• Net Reserves $11.5 Billion • FY21–22 $44.71
• Commercial Bank Reserves $5.67 Billion; Billion
• July 2022 $3.35 Billion.
• Current Account Deficit
• FY21–22 $17.41 Billion
• July 2022 Of $3.13 Billion;

June-21 June-22 June-23

Domestic Debt 167.0 152.1 135.5
External Debt 86.5 88.8 84.1
Total Public Debt 253.4 240.9 219.6
• GDP= 0.29 %
– Projected 5% (FY23-24)
– ADB projection 1.9%
• Per Capita Income
$1,568
• Revenue Target FY23-24
– 9.2 trillion
• public debt
– (Rs. 49.2 trillion in June 2022,
doubled over June 2018 level)
• Fiscal Deficit
• Rs. 6.5 trillion
– High fiscal deficit (7.9% of GDP in
2021-22)
– The fiscal deficit, excluding
grants, is 6.7 percent of GDP in
FY22-23: WB
– Fiscal Deficit 23-24 6%
• Revenues • Public Debt
– Tax – Domestic
– Non Tax – Foreign
• Expenditure • Cash
– Current (Non – PKR (Coins & Currency
Development) Notes)
– Development (Capital – USD (FOREX)
Expenditure)

GDP: FY2022-23=0.3%
Projected GDP FY 2023-24:3.5% (WB: 2% and for FY 2023-24:
3%)
Dev. Budget: 2.7 Tril (PSDP: 1.15 tril, Provincial Share: 1.55 tril)
 Budgeting
• Derived from French term ‘Bougette’

• “ Budget is a financial plan of govt. for a definite

period” (Taylor)
– Fiscal period= 1st, July to 30 June in Pakistan (FY 2023-
24)
• “ A budget is a financial statement prepared in
advance of opening of a fiscal year based on
estimated revenues and proposed expenditures
of govt. departments & public entities for the
ensuing fiscal year” (H R Bruce)
9
• A govt budget is a statement of social
priorities
– It provides a society’s dimension of socio-
economic change and development.
• Budget also reflects political exigencies of the
govt.
• Equally important is its role in reforming
public sector.
• Budget has a revenue dimension.

10
Budget as an instrument of fiscal policy

• Fiscal policy is concerned with the impact of govt.

taxation and spending on the economy

• Before Great Depression govt. bothered least about

market mechanisms (Free Economy)

• After Great Depression, governments excessively

intervenes in the economy through budget
process------Keynesian Economics

• The ways federal govt. can influence the economy

• By varying its own spending
• By raising or lowering taxes
11
Budget as an instrument of public policies
• Favorite govt. programmes are funded

• Budgetary priorities are set mostly

under political influences

• Two concepts
– Where the money comes from
– Where the money goes

12
Where the money comes from: 3 big sources
A- Govt. own sources
B- Transfers from other governments
C- Loans, Grant and aids

A- tax and Non Tax sources of Govt. income

• Individual income tax Sale proceeds
• Corporate income tax Profits
• Payroll taxes Fee charges
• Sales tax
• Excise taxes
• Property taxes
• Wealth tax
• Withholding tax
• Other revenue sources

13
 Where the money comes from cont..

B- transfers from other governments

– Intergovernmental transfers
– National Finance Commission Award
– Provincial Finance Commission Awards
– District Govt. Finances

C- Loans, Grants & Aids

Debt-to-GDP ratio in Pakistan
domestic sources- commercial banks
2024* 68.91%
International Sources
2023* 73.58%
donor agencies
2022* 75.75%
countries
2021 73.56%

14
 Where the money goes
Non-Development
Development
1. Debt repayments
(Principal + Interest) • Govt. priorities
2. Defense & Defense • New conditions
Production, Counter
arise
Terrorism
3. Subsidies & grants • New programs are
4. Pension Liability proposed
5. Law & Order, internal • Old programs are
peace and policing expanded
6. Admin. Expenditure-
Running of Civil Govt. 15
 Budget Making Process

Actual Budgetary Proposed

Revised Budgetary
Figures of previous Budgetary Figures
Figures of current
Fiscal Year of next Fiscal Year
Fiscal Year (2023-24)
(2022-23) (2024-25)

Allen Schick suggests that budget has at least three

different purposes;
Fiscal Planning
Fiscal Operations Management
Budgetary Controls and Accountability
The budget making process- the budget cycle

• The budget as Managerial tool

• Authorization of public programs by members of

parliament

• Appropriations – budgetary allocations

authorized by the Parliament

• Accounting (Fiscal Reporting) and auditing (Fiscal

Accountability) of budget
17
Annual Budget Statement (Article 80 of the Constitutio
n)

• 80. Annual Budget Statement.-

(1) The Federal Government, for every financial
year, lay before the National Assembly a statement of
the estimated receipts and expenditure called the Annual
Budget Statement.
(2) The Annual Budget Statement shall show
charged and voted expenditure and shall distinguish
expenditure on revenue account from other expenditure.
This Budget Call Circular-2023-24 also contains reporting
on gender and green components
 The Budget Cycle: Budget Making Process
• A six step process;
1. Setting budget policy and initiatives (Budget Call Circular) both Internal
& External Factors influence it
i. Cabinet
ii. Prime Minister
Executive &
iii. Ruling Party Leaders and Key Ministers
Bureaucratic iv. Bureaucrats
Level v. Media and Experts (Think Tanks)
Processes vi. IFCs and donors
2. Preparation of estimates
i. Three levels (Agency, Ministerial, National Budget)
ii. Budget Call Circular steps 1-4, 10 and 13
iii. Budget Strategy Paper
Bureaucratic
3. Authorization- (Legislative Process): Annual Budget Statement – Finance
Level Bill-Finance Act
Processes 4. Implementation
5. Reporting & Monitoring

6. Review & Audit (Audit and Legislative Process)

i. Compliance Audit
ii. Financial Attestation
iii. Performance Audit
 The budgetary cycle
1-Policy
PAD,
Setting
Ministries &
PAC
The Cabinet MoF, Spending
2-Preparation
Ministries
6-Review

Cabinet,
National
Assembly
5-Reporting President
&
Monitoring 3-Authorization

PAD, Spending 4-
Ministries Implementation PAC: Public Account Committee
MoF, Spending PAD Pakistan Audit Department
PAC: Public Accounts Committee
Ministries
PFM - KEY STAKEHOLDERS’ RELATIONSHIP
Policy
Legislature Cabinet
Agenda
Audited
Financial Planning
Reports Division
Development
State Bank of Ministry of
Plans
Pakistan Finance
(Budget)
(Consolidated Funds
Funds)
Auditor General of Budget Call
Ministries,
Pakistan Expenditure Divisions,
& Receipts Departments,
Economic
Federal Board DDOs
Affairs Financial records
of Revenue
Division
(External Controller General of
Loans) Accounts

Public Financial Management System in Pakistan

 Approaches to Public Budgeting
• Incremental Budget
• The Line-Item Budget
• The Performance Based Budgeting
– Out-Put Based Budgeting
• Zero-Based Budgeting

24
 Incremental Budgeting Approach
• Closed fiscal year, particularly, latest closed
fiscal year,
• Actual fiscal data is taken as base year data
• We propose certain increment in the budget
estimates for next fiscal year
• It is political approach called ‘muddling
through’ or slow increase in fiscal operations
of the government.
 Line Item Budgeting
• A budget in which the individual financial
statement items are grouped by cost
centers or departments.

• It shows the comparison between the financial data for

the past budgeting periods and estimated figures of
the current or a future period.

the budget of a given fiscal year (FY) is largely decided

upon by the existing budget.
 Zero-Base Budgeting
• It is a response to an incremental budgeting
• In contrast to incrementalism, the
allocation/funding is determined from a zero-
sum accounting method.
• In government, each function of a
department's section proposes certain
objectives that relate to some goal the section
could achieve if allocated x amounts.
https://www.google.com/search?biw=1226&bih=536&tbm=isch&sxsrf=ACYBG
Incremental Vs. Zero-Base
 Performance Based Budgeting
• What is Performance?
• What is fiscal performance ? (Value for Money), (Fiscal Gains)
• Fiscal Performance may be judged by
– a program's ability to meet certain objectives that contribute to a goal
– as calculated by that program's ability to use resources (or inputs)
• Efficiently—by linking inputs to outputs—and/or
• Effectively—by linking inputs to outcomes.
• Economically- cheaper operations with quality
• Environment: Green Budget
• Equity: Gender Component of Budget

• Allocation of scarce resources/funding depends on determining which

project maximizes efficiency and efficacy.
• “Performance budgets use statements of missions, goals and
objectives to explain why the money is being spent. It is a way
to allocate resources to achieve specific objectives based on
program goals and measured results.” Carter

• According to Segal and Summers, performance budgeting

comprises three elements:
– Setting the result (final outcome)
– the strategy (different ways to achieve the final outcome)
– activity/outputs (what is actually done to achieve the final outcome)
• Harrison elaborates:
– PBB sets a goal, or a set of goals,
– monies are “connected” (i.e. allocated) to these goals,
– specific objectives are derived,
– funds are then subdivided among them.
• it requires to list down Key Performance
Indicators (KPIs) at the outset

• linking these performance indicators to

resources

• This is “where strategy and planning meet

execution and measurement”
 Govt. Accounting & Auditing
• The Auditor General of Pakistan

• The Controller General of Accounts

37
• The Auditor General's organization is the
prime institution in the country for ensuring
public accountability and fiscal
transparency in governmental operations.
• improvements in the financial discipline
and internal control environment in the
executive departments
– VISION
– A model supreme audit institution adding value to national resources.
– MISSION
– Serving the nation by promoting accountability, transparency and good governance in the
management and use of public resources.
 A&A System in Pakistan
• Introduction
– The importance of Public Accounting System
– Accounting and PFM relation
– Budgeting and Accounting
– Audit and Accountability (Fiscal Governance)
• The Audit Department
– Audit ---a Constitutional Function
– Constitutional Provisions regarding A&A of the
Federation, Provinces, local govt.
– Articles 168-171
 A&A: Constitutional Function
• The Auditor General of Pakistan (AGP)
– Articles 168-171
– The Audit & Accounts Order-1973
– The AGP Ordinance-2001
• The Controller General of Accounts (CGA)
– A BPS-22 Officer of PA&AS
– Accounting Function …Article-171
– The CGA Ordinance-2001
 CGA Setup
• Accountants General
– Accountant General in Provinces
– AGPR for Federal Accounting
– Military Accountant General for Defense
Accounting
– Accountant General GB
– Accountant General AjK
• District Accounts Offices
– District Accounts Officers for District, Provincial
and Federal accounting
 Accounting & Budgeting Information System

• Financial Accounting & Budgeting System

(FABS)
– Accounting and Financial Reporting
• Monthly Civil Accounts
• Annual Appropriation Accounts
• Annual Finance Accounts
– Budget Execution
– Budget Authorization
– Issuance of Payments and Cheques
– Reconciliation
 Auditor General of Pakistan
• Field Audit Offices • Audit Types
under Director General – Financial Audit
of Audit – Performance Audit
– DG Federal Audit – Authority-Compliance
– DG Defence Audit Audit
– DG Works Audit – Energy Audit
– DG Provincial Audit – Social Safety Audit
– DG District Audit – Climate Audit
– Etc….. – Audit of SDGs
– IS Audit
Budget Preparation, Acquisition
& Distribution of Funds
Budgeting & Public Finance
 Financial Operations of the Government

• Revenue Collection

• Expenditure Control

• Debt Management
 Organizational Structure of the Accounting
System

• The Accounting Side

– The Auditor General of Pakistan & the CGA
– The AGPR
– The Provincial AGs, and MAG
– the District Accounts Offices/TOs

• The Executive Side

– The Principal Accounting Officer
– The Drawing & Disbursing Officer
 Responsibilities for Budgeting
• Spending ministries are responsible for their
own budget estimates (Acquisition of public
funds)

• A number of other government entities also

support during the budget process;
– Planning Commission
– EAD
– The Accountants General
Control of Expenditures
 Control of Expenditure
• Control by FD

• Control by Administrative Ministries

• Control by Accounting offices

• Audit and Parliamentary Control

 Reforms in Budgetary Process
• The GoP has launched structural reforms in fiscal management, budgeting,
financial reporting and auditing

• Revenue Management Reforms

• The NAM and APPM– standardization of forms and formats

• PIFRA reforms – establishing linkage among key stakeholders in fiscal

management.

• MTBF & MTDF

• Fiscal Responsibility & Debt Limitation Act, PFM Act-2019, Finance Act
(passed by NA for every fiscal year)
• The annual budget of the Federal Government is based
on a medium term budgetary framework (MTBF).

• The MTBF is an approach to budgeting that integrates

– policy-making,
– planning and
– budgeting within a medium-term framework.

• The MTBF has provided the framework for budget

preparation in all Ministries/Division and Departments
of the Federal Government since 2009.
 The MTBF has three main objectives:

• To strengthen fiscal discipline by creating and

orderly framework for management of the annual
budget over the medium term;
• To strengthen the alignment of federal resources
by the government to the government’s policies
and strategies; (performance based)
• To build the capacity in federal ministries to
prepare and manage their budgets in a manner
which provides
– cost-effective service delivery (outputs) and
– efficient use of public funds (value for money).
 The MTBF
• The MTBF involves preparation by line ministries
of three-year expenditure estimates

• and by the Planning Commission (for the

development budget-MTDF).

• Each year, the MTBF process involves the rolling

forward of the previous MTBF estimate by one
year and the addition of a new outer year.
FY 2023-24

FY 2024-25

FY 2025-26

T-1 T-2 T-3

 Issues & Challenges
• Traditional incremental approach towards budget estimates still
prevalent

• Lack of professionalism and technical competence of staff

responsible for budget making

• Overlapping of activities and excessive bureaucratization in

budget making process

• Role of FD in adjusting Demands for Grants during the currency

of fiscal year

• Weak Parliamentary control over appropriations

• CSS-2023
– Q. No. 3. A great deal of political debate in the last two decades has
focused on strategies for controlling the federal budget deficit. Why is this
an important issue for the government and what strategies have been
employed by governments to manage the deficit? Give examples.

• CSS-2022
– Q7. Governmental budgets remain an area of general concern as well as
controversy. Considerable attention is given to taxation and other sources
of governmental revenues. Discuss the federal budget process in Pakistan
paying special attention to its ability to find governmental activity and
help to regulate the economy’s business cycle.

• CSS-2021
– Q. No. 5. The idea of performance-budget lies beneath the word ‘results’.
In the light of statement, examine the elements of performance-based
budgeting with reference to Pakistan. (20)
• CSS-2020: NIL
• CSS-2019
• Q. No. 7. Discuss in detail the budgeting process of Pakistan. Do you satisfied with the
process? Discuss with practical examples.

• CSS-2018: NIL
• CSS-2017
• Q. No. 8. Write substantive notes on any TWO of the following: (10 each) (a) Zero based
budgeting (b) Judicial Activism (c) Social Policy

• CSS-2016
• Q. No. 5. Governmental Budgets remain an area of general concern as well as controversy.
Considerable attention is given to taxation and other sources of governmental revenues.
Discuss the federal budget process in Pakistan paying special attention to its ability to find
governmental activity and help regulate the economy’s business cycles.
 CSS-Questions
• Css-2015
• Q. No. 8. Describe the system of auditing in Pakistan and examine its role
in combating corruption and financial miss-management in government
departments.
• Css-14
• Q. No. 8. Write short NOTES on any TWO of the following: (10 each) (a)
Woodrow Wilson’s contribution to Public Administration (b) Planning
Process in Pakistan (c) Zero-based Budgeting
• Css-2013
• Q.8. Write notes on any TWO of the following:-
• (a) Role of public administration in modern welfare state (b)
Ecology of Bureaucracy (c) Problems of coordination in public
administration in Pakistan (d) Performance budgeting
• CSS-2011
• Q.7. The flow and management of funds is the lifeblood of our system of
public administration. Explain the government’s budgetary system. Is it an
inherently political process?

• Css-2012
• Q. 5. What is performance budgeting? Bring out its merits, limitations and
difficulties. (20)
 Cut Motions
• 1. Disapproval of policy cut:
– A disapproval of policy
– the demand be reduced to Rs 1
– Member(s) moving the cut has/have to indicate the details of the policy which they
want to discuss
– be confined to the specific points mentioned in the cut notice.

• 2. Economic cut:
– The economic cut motion calls for a reduction in the allocation of the demand to a
specific amount.
– It represents the economy that can be affected.
– amount may either be a lump-sum reduction in the demand or omission or reduction
of an item in the demand.
– The notice has to indicate the particular matter on which a discussion is sought to be
raised.

• 3. Token cut:
– A token cut motion is moved so that the amount of the demand is reduced by Rs 100.
– This is to ventilate a specific grievance that is within the sphere of the responsibility
of the Government.
Q&A