A critical analysis of Federal Government Budget 2015-16 of Government of Pakistan

1. FEDERAL GOVERNMENT BUDGET 2015-16
A CRITICALANALYSIS
BY: IMRAN KHAN, AS # 141
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2. SEQUENCE OF THE PRESENTATION
• Currency
• Introduction
• Sources
• Analysis
• Issues & Challenges
• Conclusion & Recommendation
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3. CURRENCY OF THE PRESENTATION
3Tribune June 5, 2015 Tribune October 8, Forbes, Dec 5, 2015

4. SOURCES
• Finance Bill 2015-16
• Economic Survey 2014-15
• South Asian States Turning into Security States and its Larger Implications 1
• Roadmap for Economic Growth of Pakistan 2
• World Bank Country Partnership Strategy3
• IMF LoI, Memorandum of Economic and Financial Policies, and Technical
MoU. 4
• 1 http://www.irs.org.pk/reports/report_021512.pdf
•
2 http://www.ipripak.org/wp content/uploads/2015/04/roadmapb.pdf
•
3 http://siteresources.worldbank.org/PAKISTANEXTN/Resources/pdf-Files-in-Events/Federal-Budget-Process/FBPinPakistan.pdf
•
4 https://www.imf.org/external/np/loi/2015/pak/061215.pdf
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5. INTRODUCTION
• Forecast by a government of its revenues and expenditures for a specific
period of time
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.
• It is one of the main tool of Economic Policy: i.e. Fiscal Policy. The other being
Monetary Policy
• It is finalized by Ministry of Finance and approved by Parliament.
• The process starts in Oct by Budget Call letter and End in late June with
parliament approval
• Total outlay of budget 2015-16 is 4451 bn PKR.
• Current expenditure are 3482 bn, and development expenditure are 969 bn
(78.2% and 21.8%)
•
•
1
Encyclopædia Britannica Online, s. v. "government budget", accessed February 3, 2016, http://www.britannica.com/topic/government-budget. 5

6. BUDGET RELATED RULES AND REGULATIONS
• Article 73: Procedures With Respect To Money Bills
• Article 80: Annual Budget Statement (Federal Budget to be laid before NA)
• Article 81: Expenditure Charged Upon Federal Consolidated Fund
• Article 82: Procedure Relating to Annual Budget Statement
• Article 84. Supplementary and Excess Grants
• Article 160. NFC Award, 57.5% tax revenue provinces (7th NFC Award)
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7. BUDGET RELATED LAWS
• THE CUSTOMS ACT, 1969
• SALES TAX ACT, 1990
• INCOME TAX ORDINANCE, 2001
• FEDERAL EXCISE ACT, 2005
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8. BUDGET 2015-16: RESOURCES
• Total outlay of budget is Rs 4,451 (42 bn USD)
• Internal Resources are 3366 bn, external resources=751 bn and Bank
Borrowing = 282
• External Resources (Project Loans, Aid, WB, IMF, KL, Sukuk, Euro bond) =
751
• FBR Tax collections are estimated to be 3103 bn.
• Estimated provincial Surplus to be 297 billion
• Privatization proceeds are expected to be 50 bn
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9. 2463
606
298
751
283
50
Net Revenue
Receipt
Net Captial
Receipt
Est
Provincial
Surplus
External
Resources
Bank
Borrowing
Privatization
Proceeds
3482
700
164 105
Current
Expenditures
Federal PSDP Other Dev. Exp. Dev. Loan/Grants
to Provinces
RESOURCES = 4451 BN EXPENDITURES = 4451 BN
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10. ANALYSIS-EXPENDITURES
• Total Current Expenditures = 3482
• Debt Servicing stand at 1280 bn – the largest of all the expenditures
• Defense Expenditures have increased to 781 bn
• Running Civil Govt costs 326 bn
• Pensions continue to grow: Military 174 bn & Civilians 56 bn
• Health have been allocated 11 bn, Education services 76 bn and BISP has
been given 102 bn.
• PSDP allocations are 700 billion.
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11. COMPARATIVE ANALYSIS (source: CIA, UNDP, MoF for 2014)
Sr. # INDICATOR PAKISTAN INDIA CHINA BANGLADESH
1. GDP Per Capita (PPP) 4700 5800 12900 3400
2. GDP Growth Rate (%) 4.14 5.6 7.4 6.2
3. Human Dev. Index 147 (Low) 135 (medium) 91 (High) 142 (medium)
4. Adult Literacy Rate (%) 57 71 96 61
6. Life Expectancy 67 63 75 70
7. Poverty (%age of population below 2$/day) 60 53 29 57
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12. ISSUES AND CHALLENGES
• Only 0.5% and 2% of GDP for Health & Education respectively
• Largest expenses: Debt servicing (1200 bn) & Defence (780 + 174 + 100 +
CSF etc. )
• Bank borrowing are leading to crowd out of private investment
• Unsustainable Subsidies of 137 bn to Wapda, KESC & PASSCO
• PSDP is subject to frequent cuts (28 bn reserved for Federal Development?)
• Low Tax to GDP ratio i.e. 9.5%
• SRO culture
• Supplementary Grants
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13. CONCLUSION
1. The budget of 2015-16 is a continuation of the past with overstated targets
which will be subject to revision in the latter part of the year.
2. The budet do not reflect the Quaid’s vision of Pakistan being Social Welfare
Country.
3. Debt servicing and Defence consume more than half of the budget while
there is a widespread (mis)use of SRO culture and supplementary grants
leaving a question mark on the whole process.
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14. RECOMMENDATION
1. Social Welfare State rather than a Security state. (Economic Competition)
2. Increasing direct taxes
3. We need to invest in human capital (Education, Health, SDGs etc.)
4. Phasing out of power subsidies
5. Less reliance on unpredictable sources of revenue
6. Abolition of SRO culture
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15. THANK YOU
Q&A
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16. SOME IMPORTANT INDICATORS
GDP of Pakistan 2014-15 (at Market Prices PKR) 27384 Billion (262.4 Bn USD)
Literacy Rate
Poverty Rate
Growth Rate of GDP in 2014-15 4.2%
Forecast for GDP 2015-16 5.5%
Inflation 4.8% (Next year forecast is 6.0%)
Per Capita Income 1512 USD
Literacy Rate
Public Debt as %age of GDP 62%
Tax Revenue as %age of GDP 9.5%
Fiscal Deficit 5% of GDP
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17. ISSUES AND CHALLENGES
1. Ever increasing Public Debt
2. Low Saving rate 14.5% of GDP for FY-2014-15
3. Economic and Social Development
4. Saving to GDP ratio = 10%
5. Investment to GDP ratio = 13%
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