Public Finance

Study of the goverment role in the economy. It is a branch of economics which assess the
goverment revenue and goverment expenditure of the public authorities and adjustments of
one or other to achieve desireable effects and avoid undiserable ones.

Lord Dalton describes public finance is one of those subjects which

lie on the border line between Economics and Politics and that it
signifies the income and expenditure of public authorities and
adjustment of one with the other.(DDO Handbook)

Tax is the Marginal Social Sacrifice by the public and Marginal

Social Benefit is the benefits public enjoy by one additional unit of
public Expenditure.

Introduction to PFM:

PFM refers to set of laws,rules,system and processes used by soverign nations and sub
national goverments to:

1. Mobilize Revenue.(Opprtunities to create, assess, collect, report and audit of revenue)

2. Allocate Public Fund.(Revemue,Expenditure Budget,Social Advantage, Priorities)
3. Undertake Public Spending.(Budget allocated to spend)
4. Account for Funds.(Public Account and Federal Consolidated Fund)
5. Audit Result.

Scope Of PFM:

PUBLIC REVENUE PUBLIC EXPENDITURE

PUBLIC DEBT FISCAL ADMINISTRATION

Pyramid of Legal Frame Work:

SOP'S
BUDGET MANUAL,O.M’S,COMPENDIUM OF PENSION
MANUALS
FM&PAO REGULATION 2021, SYSTEM OF FC AND BUDGETING 2008

REGULATION
GFR 1934, SCR 1980, FTR 1932, Fundamental & Supplemetary Rules APT RULES
RULES 1973, Conduct Rules 1964, E&D Rules 2020, Seniority Rules 1993, GPF Rules
1934
PRESIDENTIAL/ GOVERMENTS
ORDER
ORDINANCES
PFM ACT 2019,Public Debt Act 1944,Fiscal Responsibility and Debt Limitaion
ACTS Act 2005,SBP ACT 1954,CSA ACT 1973,Provident Fund Act 1925

CONSTITUTION Article78 to 86, Article 118 to 126,& 160 to 171.

Corporate Vs Public Finance

Corporate Public
Theme Theme
Value Creation To protection of life,property,basic
rights,provision of amenities through
construction of roads, bridges, hospital etc

Goods and Services ,Inputs(Costs), Inputs are taxesand output is social benefits
output(Sales).
A=L+E Expenditure=Revenue+ Financing
Maximizing Share Holders Wealth Maximizing Social Advantage
Three Decisions Three Decisions
 Investments  Increase Taxation
 Financing  Increase Financing
 Dividends  Reduce Expenditure

CIPFA approach to PFM is the system by which the financial aspect of the public services
businesss are directly controlled and influanced to support the sector goals Sustainable Social
Benefit.

IPSASB approach to PFM as an Information system/Puposive system which dosent merely

provide information on expenditure but actually manages and control such expenditures. Two
objectives of this approach is Accountability and Resource Allocation

PFM Dimensional Approach

1. Aggregate
Fiscal
Management

[Link]
PFM [Link]
Management

[Link] Risk
Management
1. Aggregate Fiscal Mnagement:

1. Fiscal Sustainability
a. Fiscal Risk.(Tax targets not achieved either acquire debt or decrease expenditure)
b. Structural Fiscal Defecit.(Moniter on daily basis: Overall Deficit, Fiscal Deficit
and Revenue Deficit)
2. Maximizing Resource Mobilization
a. Assesing soverign debt risk.
b. Public and private inward investments.
c. The ability to absorb and utilize external aid effectively.
3. Resource Allocation in accordance to policy Priorities.
a. Effectiveness of civil society participation.
b. Mid-term budgetery frame work.(Green Book)
c. Fiscal Transparency.(Risks of hidden information)

[Link] Management:

1. Effective Performance Management

a. Input-Output measurement constraints
b. Developing non financial measure of performance.
c. Performance measure of objectives must be linked to the financial resources used
to achieve such objectives.
2. Delievering Value For Money
a. Economy, Efficiency, Effectiveness, Material, Human resource,Financial
Resource.

Economy Effectiveness

Input Process Output Out come Objective Goal

Efficiency

[Link] Within Budget.

a. Balanced Budget.

[Link] Management:

a. Effective Financial Control.

[Link]:

a. Structure Transparency, Accountability.

 Constitution Of Islamic Republic Of Pakistan

Financial Procedures

Article78-86

Article118-126 (For Provincial Goverments)

Article160-165 (Federal Goverment 171

Legal Frame Work

Constitution

Schedule Of
Annual Budget Charged Voted Supplementary
Authorised
Statement Expenditure Grant
Expenditure

Article78. Federal Consolidated Fund and Public Account

(1) All revenues received by the Federal Government, all loans raised by that Government,
and all moneys received by it in repayment of any loan, shall form part of a consolidated
fund, to be known as the Federal Consolidated Fund.

(2) All other moneys—

(a) received by or on behalf of the Federal Government; or

(b) received by or deposited with the Supreme Court or any other court established under the
authority of the Federation; shall be credited to the Public Account of the Federation.

Article79. Custody, etc., of Federal Consolidated Fund and Public Account

The custody of the Federal Consolidated Fund, the payment of moneys into that Fund, the
withdrawal of moneys therefrom, the custody of other moneys received by or on behalf of the
Federal Government, their payment into, and withdrawal from, the Public Account of the
Federation and all matters connected with or ancillary to the matters aforesaid shall be
regulated by Act of 1 [Majlis-e-Shoora (Parliament)] or, until provision in that behalf is so
made, by rules made by the President.

Article 80 Annual Budget Statement

 (1) The Federal Government shall, in respect of every financial year, cause to be laid before
the National Assembly a statement of the estimated receipt and expenditure of the Federal
Government for that year, in this Part, referred to as the Annual Budget Statement.

(2) The Annual Budget Statement shall show separately—

(a) the sums required to meet expenditure described by the Constitution as expenditure
charged upon the Federal Consolidated Fund; and

(b) the sums required to meet other expenditure proposed to be made from the Federal
Consolidated Fund;

and shall distinguish expenditure on revenue account from other expenditure.

Article 81 Expenditure charged upon Federal Consolidated Fund

The following expenditure shall be expenditure charged upon the Federal Consolidated Fund:
(a) the remuneration payable to the President and other expenditure relating to his office, and
the remuneration payable to-

(i) the Judges of the Supreme Court 2 [and the Islamabad High Court];
(ii) the Chief Election Commissioner;
(iii) the Chairman and the Deputy Chairman;
(iv) the Speaker and the Deputy Speaker of the National Assembly;
(v) the Auditor-General

(b) the administrative expenses, including the remuneration payable to officers and servants,
of the Supreme Court, the Islamabad High Court, the department of the AuditorGeneral, the
Office of the Chief Election Commissioner and of the Election Commission and the
Secretariats of the Senate and the National Assembly;]

(c) all debt charges for which the Federal Government is liable, including interest, sinking
fund charges, the repayment or amortisation of capital, and other expenditure in connection
with the raising of loans, and the service and redemption of debt on the security of the
Federal Consolidated Fund;

(d) any sums required to satisfy any judgement, decree or award against Pakistan by any
court or tribunal; and

(e) any other sums declared by the Constitution or by Act of 2 [Majlis-e-Shoora

(Parliament)] to be so charged.

Article 82 Procedure relating to Annual Budget Statement

(1) So much of the Annual Budget Statement as relates to expenditure charged upon the
Federal Consolidated Fund may be discussed in, but shall not be submitted to the vote of, the
National Assembly.
(2) So much of the Annual Budget Statement as relates to other expenditure shall be
submitted to the National Assembly in the form of demands for grants, and the Assembly
shall have power to assent to, or to refuse to assent to, any demand, or to assent to any
demand subject to a reduction of the amount specified therein: Provided that, for a period of
ten years from the commencing day or the holding of the second general election to the
National Assembly, whichever occurs later, a demand shall be deemed to have been assented
to without any reduction of the amount specified therein, unless, by the votes of a majority of
the total membership of the Assembly, it is refused or assented to subject to a reduction of
the amount specified therein.

(3) No demand for a grant shall be made except on the recommendation of the Federal
Government.

Article 83 Authentication of schedule of authorized expenditure

(1) The Prime Minister shall authenticate by his signature a schedule specifying—

(a) the grants made or deemed to have been made by the National Assembly under Article
82, and

(b) the several sums required to meet the expenditure charged upon the Federal Consolidated
Fund but not exceeding, in the case of any sum, the sum shown in the statement previously
laid before the National Assembly.

(2) The schedule so authenticated shall be laid before the National Assembly, but shall not
be open to discussion or vote thereon.

(3) Subject to the Constitution, no expenditure from the Federal Consolidated Fund shall be
deemed to be duly authorised unless it is specified in the schedule so authenticated and such
schedule is laid before the National Assembly as required by clause (2).

Article 84. Supplementary and excess grants

If in respect of any financial year it is found—

(a) that the amount authorized to be expended for a particular service for the current
financial year is insufficient, or that a need has arisen for expenditure upon some new service
not included in the Annual Budget Statement for that year; or

(b) that any money has been spent on any service during a financial year in excess of the
amount granted for that service for that year;

the Federal Government shall have power to authorize expenditure from the Federal
Consolidated Fund, whether the expenditure is charged by the Constitution upon that Fund
or not, and shall cause to be laid before the National Assembly Supplementary Budget
Statement or, as the case may be, an Excess Budget Statement, setting out the amount of that
expenditure, and the provisions of Articles 80 to 83 shall apply to those statements as they
apply to the Annual Budget Statement.
Article 85 Votes on account

85. Notwithstanding anything contained in the foregoing provisions relating to financial

matters, the National Assembly shall have power to make any grant in advance in respect of
the estimated expenditure for a part of any financial year, not exceeding four months,
pending completion of the procedure prescribed in Article 82 for the voting of such grant and
the authentication of the schedule of authorized expenditure in accordance with the
provisions of Article 83 in relation to the expenditure.

Article 86. Power to authorize expenditure when Assembly stands dissolved

Notwithstanding anything contained in the foregoing provisions relating to financial matters,

at any time when the National Assembly stands dissolved, the Federal Government may
authorize expenditure from the Federal Consolidated Fund in respect of the estimated
expenditure for a period not exceeding four months in any financial year, pending
completion of the procedure prescribed in Article 82 for the voting of grants and the
authentication of the schedule of authorized expenditure in accordance with the provisions of
Article 83 in relation to the expenditure.

Article 168Auditor-General of Pakistan:

168. (1) There shall be an Auditor-General of Pakistan, who shall be appointed by the
President.

(2) Before entering upon office, the Auditor-General shall make before the Chief Justice of
Pakistan oath in the form set out in the Third Schedule. 2

(3) The Auditor-General shall, unless he sooner resigns or is removed from office in
accordance with clause (5), hold office for a term of four years from the date on which he
assumes such office or attains the age of sixty-five years, whichever is earlier.]

(3A) The other terms and conditions of service of the AuditorGeneral shall be determined
by Act of Majlis-e-Shoora (Parliament); and, until so determined, by Order of the President.

(4) A person who has held office as Auditor-General shall not be eligible for further
appointment in the service of Pakistan before the expiration of two years after he has ceased
to hold that office.

(5) The Auditor-General shall not be removed from office except in the like manner and on
the like grounds as a Judge of the Supreme Court.

(6) At any time when the office of the Auditor-General is vacant or the Auditor-General is
absent or is unable to perform the functions of his office due to any cause, 1 [the President
may appoint the most senior officer in the Office of the Auditor-General to] at as
AuditorGeneral and perform the functions of that office.
Article 169. Functions and powers of Auditor-General

169. The Auditor-General shall, in relation to—

(a) the accounts of the Federation and of the Provinces; and

(b) the accounts of any authority or body established by the Federation or a Province,
perform such functions and exercise such powers as may be deter-mined by or under Act of
2 [Majlis-e-Shoora (Parliament)] and, until so determined, by 3Order of the President.

Article 170. Power of Auditor-General to give directions as to accounts

[(1)] The accounts of the Federation and of the Provinces shall be kept in such form and in
accordance with such principles and methods as the Auditor-General may, with the approval
of the President, prescribe.

[(2) The audit of the accounts of the Federal and of the Provincial Governments and the
accounts of any authority or body established by, or under the control of, the Federal or a
Provincial Government shall be conducted by the Auditor-General, who shall determine the
extent and nature of such audit.]

Article 171. Reports of Auditor-General

. The reports of the Auditor-General relating to the accounts of the Federation shall be
submitted to the President, who shall cause them to be laid before the 5 [both Houses of
Majlis-e-Shoora (Parliament)] and the reports of the Auditor-General relating to the accounts
of a Province shall be submitted to the Governor of the Province, who shall cause them to be
laid before the Provincial Assembly.
 Budgeting In Pakistan

Budget is a comprehensive plan,expressed in financial term in a specific time period by

which operational programmes are effective for a given period:

 Serviecs activities & Projects comprising the programme.

 Expenditure requirement
 Resource available for their support.

Budget is an instrument in which goverment expresses its priorities and alocate resources to
implement its policies. It is tool by which planned expenditure are controlled at all levels of
goverment including Ministry-Division-Department-Subordinate Offices.

Legal Frame Work Of Budget:

Constitutional Frame Work:

 Article 80 Annual Budget Statement.

 Article 83 Schedule Of authorized Expenditure
 Article 81 Charged and Voted Expenditure

Financial Rules:

 System Of Financial Control and Budgeting Section 13 Budgetery Procedure.

 PFM ACT Chapter II Section 03 to Section 12.
 GFR Para 62 to 82.

Types Of Budgeting:

 Incremental(Previous year budget adjusted with increase of 10% carried forward

adjusted with known factors)
 Zero Based(Unlike incremental no budget line should be carried forward and all
expemses should be justified from scratch)
 Priority Based (Prioritize Economic Targets)
 Performance Based(Perfoemance connected with the allocation and management of
resources allocation of resources base d on reults/objectives.) Section 09 Of PFM Act
 Activity Based(Cost centeres or Cost drivers linkage overheads to activities)
 Cash Limited(Limited resources budget accordingly)

Budgetery Adjustments:

 Reappropriation
 Surrender
PFM Act is derived from Article 79

System Of financial Control and Budgeting PAO’s Responsibility GFR 10,11,12, 89

PAO Regulation 2021 GFR 39

Stores and Stocks GFR148 To 168

Works GFR 176

Loan and Advances GFR 132, FTR 288