Public Budgeting & Finance
Public Financial Management in Pakistan
Budgetary Process in Pakistan
Approaches to Public Budgeting
Financial Administration
• Finance constitutes a vital part of govt. activities
• Public budgeting & financial management
– Allocation of limited resources
– Tool for planning and control
– To meet ever increasing demands of the citizenry
• Financial administration refers to
– Formulation of Fiscal Policy (policy formulation)
– Fiscal Operations Management (policy implementation)
– Fiscal Accountability (policy review)
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Financial Admin
• Determines and measures the performance of
the govt.
• Govt. intervenes in the market
• Regulates the Financial market
• Provide social support and protection to the
needy
• Fulfills macroeconomic development agenda
• Intergovernmental fiscal transfers
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
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Author’s construction
• Revenues-Expenditure= +ive budget surplus
• Revenue –Expenditure= -ive budget deficit
• Revenue-Expenditure= 0 Balanced budget
• Revenues • Public Debt
– Tax – Domestic
– Non Tax – Foreign
• Expenditure • Cash
– Current (Non – PKR (Coins & Currency
Development) Notes)
– Development (Capital – USD (FOREX)
Expenditure)
Budgeting
• Derived from French term ‘Bougette’
• “ Budget is a financial plan of govt. for a definite
period” (Taylor)
• “ 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)
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• 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.
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Annual Budget Statement (Article 80 of the
Constitution)
• 80. Annual Budget Statement.-
(1) The Federal Government shall, in respect of every
financial year, lay befor the National Assembly a statement of
the estimated receipts and expenditure 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.
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
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Budget as an instrument of public policy
• Favorite govt. programmes are funded
• Budgetary priorities are set mostly under
political influences
• Two concepts
– Where the money comes from
– Where the money goes
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Where the money comes from
A- Govt. own sources
B- Transfers from other governments
C- Loans and aids
A-
• Individual income tax
• Corporate income tax
• Payroll taxes
• Sales tax
• Excise taxes
• Property taxes
• Wealth tax
• Withholding tax
• Other revenue sources
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Where the money comes from cont..
B- transfers from other governments
– Intergovernmental transfers
– National Finance Commission Award
C- Loans, Grants & Aids
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Where the money goes
• Debt repayments
• Defense
• Law & Order, internal peace and policing
• Admin. Expenditure
• Govt. priorities
• New conditions arise
• New programs are proposed
• Old programs are expanded
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Budget Cycle
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
• Accounting and auditing of budget
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The Budget Cycle
• A six-step process;
1. Setting budget policy and initiatives (Budget Call Circular)
i. Cabinet
ii. Ruling Party Leaders and Key Ministers
iii. Prime Minister
iv. Bureaucrats
v. Media and Experts
2. Preparation of estimates
i. (Agency, Ministerial, National Budget)
ii. Budget Call Circular steps 1-4, 10 and 13
iii. Budget Strategy Paper
3. Authorization
4. Implementation
5. Reporting & Monitoring
6. Review & Audit
The budgetary cycle
1-Policy
PAD, MoF, Spending
Ministries &
Setting
Ministries
PAC
The Cabinet
2-Preparation
6-Review
Cabinet,
National
Assembly
5-Reporting President
&
Monitoring 3-Authorization
PAD, Spending 4-
Ministries Implementation
MoF, Spending
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
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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.
[Link]
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
• 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
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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
• 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 further 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;
• 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).
• 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 2022-23
FY 2023-24
FY 2024-25
T-1 T-2 T-3
Issues & Challenges
• Traditional incremental approach towards budget
estimates
• Lack of professionalism and technical competence
• Overlapping of activities and excessive
bureaucratization in budget making process
• Role of FD in adjusting Demands for Grants
• Weak Parliamentary control over appropriations
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)
Q&A