Chapter 1

Budget 2010-11 summary

The budget 2010-11 had the following main salient features:

a) The total outlay of budget 2010-11 was Rs 2764 billion. This size was 12.3%
higher than the size of budget estimates 2009-10.
b) The resource availability during 2010-11 had been estimated at Rs 2598 billion
against Rs 2299 billion in the budget estimates of 2009-10.

c) Net revenue receipts for 2010-11 were estimated at Rs 1377 billion indicating an
increase of 1.9% over the budget estimates of 2009-10.

d) The provincial share in federal revenue receipts was estimated at Rs 1034 billion
during 2010-11 which was 57.9% higher than the budget estimates for 2009-10.

e) The capital receipts (net) for 2010-11 have been estimated at Rs 325 billion
against the budget estimates of Rs 191 billion in 2009-10 i.e. an increase of
70.2%.

f) The external receipts in 2010-11 were estimated at Rs 387 billion. This showed a
decrease of 24% over the budget estimates for 2009-10.

g) The overall expenditure during 2010-11 were estimated at Rs 2764 billion of

which the current expenditure was Rs 1998 billion and development expenditure
at Rs 787 billion. Current expenditure showed a decline of less than 1% over the
revised estimates of 2009-10, while development expenditure increased by
25.3% in 2010-11 over the revised estimates of 2009-10.

h) The share of current expenditure in total budgetary outlay for 2010-11 was 72%
as compared to 78% in revised estimates for 2009-10.

i) The expenditure on General Public Services (inclusive of debt servicing transfer

payments and superannuation allowance) was estimated at Rs 1388 billion which
was 69.5% of the current expenditure.

j) The size of Public Sector Development Programme (PSDP) for 2010-11 was Rs
663 billion. While for Other Development Expenditure an amount of Rs 124 billion
was allocated. The PSDP showed an increase of 30% over the revised estimates
2009-10.

1
 k) The provinces were allocated an amount of Rs.373 billion for budget estimates
2010-11 in their PSDP as against Rs 200 billion in 2009-10.

l) An amount of Rs 10 billion was allocated to Earthquake Reconstruction and

Rehabilitation Authority (ERRA) in the PSDP 2010-11.

Table 1

Summary 2010-11
(Rs in Million)

Classification Budget

2010-11

Resources

INTERNAL RESOURCES 2,211,273

Revenue Receipts (Net) 1,377,349
Capital Receipts (Net) 325,384
Financing of PSDP by Provinces 341,615
Change in Provincial Cash Balance 166,925

B. EXTERNAL RESOURCES 386,620

TOTAL RESOURCES ( A + B ) 2,597,893

EXPENDITURE 2,764,437
Current Expenditure 1,997,892
Development Expenditure (PSDP) 663,000
Other Development Expenditure 123,545
Est. Operational Shortfall in Expenditure (20,000)

PRIVATIZATION PROCEEDS

BANK BORROWING 166,544

2
 Resources
Internal Receipts
The internal resources come through revenue receipts (tax & non-tax) and net capital
receipts. Table-2 provides the budget and revised estimates for 2009-2010 in respect of
tax and non-tax revenue, while Table-3 provides the details of net capital receipts.

Table-2

Revenue Receipts

(2010-11)

Classification Budget

2010-11

Tax Revenue 1,778,715

Direct Taxes 657,700
Indirect Taxes 1,121,015

Non - Tax Revenue 632,279

Property and Enterprises 169,985
Civil Administration and Other Functions 332,250
Miscellaneous Receipts 130,044

Revenue Receipts (Gross) 2,410,994

Less: Provincial Share 1,033,644

Revenue Receipts (Net) 1,377,349

The revenue receipts in budget 2010-11, on gross basis, were estimated at Rs 2410994
million showing an increase of 20.1% over the budget estimates 2009-10. The provincial
share in taxes for 2010-11 was estimated at Rs 1033644 million which was 57.8%
higher than the budget estimates of 2009-10.

3
The tax revenue at Rs 1778715 million for 2010-11 showed an increase of 20% over
revised estimates 2009-10. Non-tax revenue was projected at Rs 632279 million in
2010-11 as compared with Rs 513646 million in budget estimates 2009-10. At this level
the non-tax revenue was higher by 23% when compared with the budget estimates
2009-10.

Table-3

Capital Receipts (NET)

(2010-11)
(Rs in Million)

Classification Budget

2010-11

1. Receipts (A+B) 380,034

A. Federal Consolidated Fund `163,890

 Recovery of Loans 47,460

 Permanent Debt 61,430
 Floating Debt 55,000
B. Public Account 216,144

2. Disbursements 54,650

Capital Receipts (NET) (1-2) 325,384

EXTERNAL RESOURCES

4
The Government obtains foreign loans and grants to use for capital and development
expenditures. The budget estimates 2010-11 were projected at Rs 386620 million which
was 24.3% lower than budget estimates 2009-10.

TABLE – 4

EXTERNAL RESOURCES

(2010-11)

(Rs in Million)

Classification Budget

2010-11

1. EXTERNAL LOANS (a to e) 286,934

a. Project Loans 64,794

b. Programme Loans 80,341
c. Euro Bonds 43,250
d. Tokyo Pledges 55,299
e. Other Aid 43,250
2. EXTERNAL GRANTS 99,686

TOTAL ( 1+2 ) 386,620

5
 TABLE-5

CURRENT AND DEVELOPMENT EXPENDITURE

(2010-11)

(Rs in Million)

Classification Budget

(2010-11)

A. CURRENT

General Public Services 1,387,664

Defence Affairs and Services 442,173
Public Order and Safety Affairs 51,263
Economic Affairs 66,897
Environment Protection 448
Housing and Community Amenities 1,842
Health Affairs & Services 7,283
Recreational, Culture and Religion 4,359
Education Affairs and Services 34,500
Social Protection 1,463

B. DEVELOPMENT

Public Sector Development Programme 663,000

Other Development Expenditure 123,545

Est. Operational Shortfall in PSDP (20,000)

Total expenditure ( A + B ) 2,764,437

6
 Government Expenditures vs. its Resources

A Critical Analysis

Dr Muhammad Yaqub, an English Columnist wrote a column on Budget: Problems and

Solutions. In it he has critically analyzed the problems of Pakistan federal budget and also
presented some suggestions for improvement. His views are as follows:

The way fiscal statistics are produced and manipulated in Pakistan, the reader gets confused
about the real underlying fiscal situation, and the relationship between budgetary trends and the
country’s economic problems. Every year the overall budget deficit appears very large, and its
control is very important, but it can be shown to be improving through statistical trickery. If a
close and objective analysis of various components of the budget is done, it would be found out
that budget mismanagement is deep and consistent, even if temporarily overall budget deficit
shows a contrary trend. It can also be established very easily that the budget is responsible for
most of the macroeconomic problems of the country, including the large foreign debt, heavy
debt-servicing burden, and uncontrolled inflation, loss of the international value of the currency,
high interest rates and even slowdown in the rate of economic growth.

A major problem is that the government approach for a long time has been to first set the level of
expenditure and then try to find the means to finance it. In the early years, foreign grants and
concessionary loans helped the country meet its heavy defense and current civilian expenditure
without much difficulty, and left some surplus for development activities. When the volume of
grants declined and the terms of loans became harder, and debt servicing emerged as a major
component of current expenditure by the 1980s, the government made no adjustment in its
expenditure and introduced no reform in the taxation system.

Instead of trying to fund it from internal resources, the government took up the unwise route of
increasing dependence on costly foreign and heavy domestic borrowing to finance rising
expenditure. This short term solution emerged out as a major and persistent long range problem.

7
These heavy and expensive borrowing to finance the budget piled up to large debt service
liabilities which have become the second largest component of current expenditure after defense
and later it even exceed from defense expenditure by a large margin.

If we come towards the taxation side, reforms have not been taken in spite of the
recommendations of several Taxation Commissions and experts to increase the tax base.
Approach of high rates of taxation imposed on a narrow tax base only resulted in tax evasion and
corruption and fuelled the underground economy. Now the government is not able to meet its
current expenditure from its revenue. Now there is a need to brake on unproductive expenditure
and improving tax collection but the government has been using the sales proceeds of precious
national assets and external and internal borrowing to meet the gap in its revenue budget. Any
sensible person can conclude that the way of government of financing its rising expenditure by
selling its national assets and by heavy borrowing is heading it towards the wrong direction.

Recommendations

The only solution that seems reasonable at this stage is to take a step towards changing the
approach of previous unwise budget making. Budget making, both at the federal and provincial
levels, must be based on the fundamental principle of living within means and it must be started
from revenue, and not from the expenditure side. Firstly the government should make a realistic
estimate of the revenue that it can generate in a given year and then come up with taxation
measures it can take to supplement its revenue resources.

Same likely with a major tax effort, the government should look at ways of cutting expenditure,
including taking of serious measures in civilian current expenditure, a reduction in defense
expenditure, and negotiations for restructuring of its foreign debt servicing liabilities. Through
this process, revenue budget should be restructured so as to generate a rising surplus in its

8
operations. These savings, in combination with non-debt creating grants and concessionary
loans, should determine the level of development expenditure, and not the other way around.

If there is any scope of non-inflationary borrowing from the banking system to finance viable
public-sector projects, that amount could be added to the size of the development budget. But
non-inflationary scope for bank financing should be determined and conveyed to the government
by the State Bank of Pakistan, based on its monetary policy considerations geared to keep
inflation within a reasonable limit. If the State Bank of Pakistan is allowed to use that authority
in practice in line with the existing law, it should then be held accountable to deliver on the
inflation target.

The current approach of sale of national silver and reckless borrowing to make both ends meet is
unsustainable and will lead to the collapse of the economy, further compromising the country’s
sovereignty and security, and may ultimately take the country on a path that leads to a failed
state. The suggested alternative approach will initially be painful, but sustainable and successful
in the long run. Moreover, the country will get rid of its begging bowel, revive and restore its
self-respect and begin to enter the group of sovereign and respectable developing nations.

http://www.columnspk.com/budget-problems-and-solutions-by-dr-muhammad-yaqub/

9
 Resources

Resource Channels of Pakistan

There are two ways of Resource channels:

a) Revenue Receipts: Revenue Receipts can be further divided into:

1. Tax Revenues,

2. Non-Tax Revenues.

b) Capital Receipts: Capital Receipts can be further classified into:

1. External Borrowings,

2. Internal non-bank Borrowings.

There are two ways through which resources can be mobilized. They are:

a) Internal Resources: resources can be mobilized internally by two methods. They are:

1. Voluntary Savings: The task of voluntary saving is crucial one. This can be done
through moral suasion and active government participation. The government should provide
necessary incentives to increase through various policy programmes. The government should
develop its financial sector so that it can act as an efficient instrument for mobilizing resources.

2. Involuntary Savings: Involuntary Savings refer to the system of mobilizing resources

through tax revenues and non-tax revenues.

Tax Revenues: Taxation system occupies the most important place in the socio-economic aspect
of a country to mobilise the internal resources. The resources so obtained are then channelised
for development purposes by the government. Pakistan has imposed various types of direct and
indirect taxes for raising revenues. These include custom duties, excise duties, estate duty,
income tax, corporate tax, taxes on sales and purchases, terminal taxes and surcharges, etc. Tax
revenues are ‘revenue receipts’.

10
Non-Tax Revenues: Non-tax sources of revenues for the Federal Government are state trading
profits, earnings of commercial departments like post office, telegraph and telephone, interest
charges on loans to provincial governments, local bodies, etc., whereas for the provincial
governments, they include irrigation charges and forests, etc.

(b) External Resources: The external resources include grants, loans and foreign aid of various
types. Since the internal resources are inadequate to meet the government expenditures, we have
to rely heavily on foreign assistance. For this purpose, we have been taking loans from IMF,
IBRD, ADB and various developed countries.

How to Increase the Rate of Capital Formation:

A country can increase its capital formation through its own domestic saving and by inflows of
capital from abroad. Following are the ways to increase net capital formation as a percentage of
national income:

(a) Capital Imports: We can increase the capital formation with the pain of reducing current
consumption, by capital inflows from abroad or exploitation of idle resources.

(b) Moral Suasion: The government should convince the people to save more. Sound national
economic management, coupled with a social security system, might make people less insecure
about economic emergencies, so that they may invest more in productive activity.

11
(c) Improvement to the Tax System: Saving is unconsumed current production. Taxation is one
form of saving. Improving the tax system increases saving. There should be emphasis on direct
taxes, taxes on luxuries and sales taxes.

(d) Increasing Investment Opportunities: Government subsidies, tariffs, loans, training

facilities, technical and managerial help and construction of infrastructure may increase saving
because prospective entrepreneurs perceive higher investment returns.

(e) Redistribution of Income: The government can encourage particular sectors and economic
groups by its tax, subsidy and industrial policies. It can redistribute income to persons with a
high propensity to save or stimulate output in sectors with the most growth potential and in
which saving and taxation are high.

(f) Local Financing of Social Investment: Local government can levy taxes, that Federal
Government cannot if the funds are used to finance schools, roads or other social overhead
projects that clearly benefit local residents.

(g) Inflationary Financing: The banking system can provide credit and the treasury can print
money to loan to those with high rates of saving and productive investment. Creating new
money, although inflationary, increases the proportion of resources available to high savers, so
that real capital formation rises.

(h) Foreign Inflow of Capital: The foreign investors from developed countries are also invited
to invest in the country. Moreover, the foreign aid and assistance are also obtained from

12
developed countries and international financial institutions such as IMF, World Bank, ADB,
Islamic Bank, Paris Club, EU, etc.

http://www.friendsmania.net/forum/151367-post4.htm

Resource Position of Budget

Internal resources are government revenue from domestic sources excluding customs. Internal
resources comprise of (Revenue Receipts (Net), Capital Receipts (Net), Financing of PSDP by
Provinces, Change in Provincial Cash Balance) and external resources comprise of Loans and
grants.

TABLE - 6 "RESOURCE POSITION"    

Classification 2010-11 2011-2012 % Change

A. INTERNAL RESOURCES 2,211,273 3,230,561 46.0950

Revenue Receipts (Net) 1,377,349 1,685,204 22.3513

Capital Receipts (Net) 325,384 346,008 6.338373

Self-financing of PSDP by Provinces 341,615 672,117 96.74679

Change in Provincial Cash Balance 166,925 527,232 215.8497

B. EXTERNAL RESOURCES 386,620 840,892 117.4983

TOTAL RESOURCES (A + B) 2,597,893 4,071,453 56.7213

Position of Resources

13
250

200

150
2010-11
100 Column1

50

0
External Resources Internal Resources Internrnal Resources

Internal Recourses and its distribution

350

300

250

200

150
2010-11
100 Column1

50

14
 Resources expected in 2011-12

21%
Internal Resources
External Resources

79%

The above charts of internal and external resources for 2011-12 are obtained through past ten
years data analysis. Average increase or decrease of respective head helps to anticipate coming
budget figures this fiscal year. The head of the internal resource has been worked upon and some
of the findings are mentioned here.

Internal Resources for the fiscal year 2010-11 were Rs. 2,211,273 million. After analyzing last
Ten years data, i.e. 1999-2010, by using average trend analysis; Internal Resources are calculated
as Rs. 3,230,561 million showing an increase of 46.09 % in the Internal Resource of the country.

The next we have Revenue Receipt (Net), by using Average trend analysis shows an increase of
22.35% this year and for Capital Receipt increase of 6.33% is indicated. Another factor, for
which an increase of 96.474% is pointed out, is the self-financing of PSDP by Provinces. For
Change in Provincial Cash Balance, an increase of 215.84% has been specified.

So far we have interpreted the Internal Resources, now come towards External resources. For
fiscal year 2010-2011 the amount set aside was Rs. 386,620 million. And by using average trend

15
analysis of the data of last ten years, we have the amount as Rs. 840,892 million, depicting an
increase of 117.49%.

Finally, Total Internal and External Resources for the last fiscal year were Rs. 2,597,893
million. So, on our assumptions total external and internal resources for this year on the basis of
average trend analysis is Rs. 4,071,453 million.

Steps to increase revenue in 2010-11 budget:

Official sources told Business Recorder that the Finance Ministry prepared a blueprint for the
federal budget 2010-11, according to which four new measures aimed to be taken for enhancing
revenue. These are:

1. Enhancement of excise tax on a number of services (eg banking and insurance etc);
2. Increase in withholding tax on imports;
3. Increase in excise tax on cigarettes; and
4. Introduction of capital value tax (CVT) on real estate

They also said that for the upcoming years, the government also plans to introduce further
revenue measures which would include introduction of broad-based value-added-tax (VAT)
replacing the general sales tax (GST) system of tax collection. According to sources, VAT
system has a better growth potential in relation to GST because it generates extra revenue
through systematic documentation of the economy. For the budget years 2010/11 and 2011/12
the estimated increase in tax revenue through the introduction of VAT is estimated at 0.8 percent
of GDP (at market prices) per annum.

Phasing out of exemptions to broaden the tax base and ensure horizontal equity in the tax system,
broadening of tax base to include services sector and completion of tax administration reforms
are also among the measures to be taken to enhance revenue as per the government commitments
with the International Monetary Fund (IMF). The measures, according to Finance Ministry, are
estimated to increase tax revenue by 0.2 percent of GDP (at market prices) for 2010/11. Based on

16
 these estimates, the tax to GDP ratio would increase to 10.3 percent in 2010-11, as compared to
the budget target of 9.3 percent during the fiscal year 2009-10, sources added. With regard to
petroleum levy and gas surcharge, sources said, consumption of petroleum products would
gradually increase and that would result in increased revenue. During 2010-11, the government
is expecting revenue of Rs 135 billion, against the possible budgeted target of Rs 134 billion, and
a revised target of Rs 133 billion during the fiscal year 2009-10.

Sources said that dividend receipts are expected to increase in the wake of a decision to
restructure eight public sector enterprises over the medium-term which would help in reducing
losses and an increase in return on investment.

The grants include project grants, budgetary support grants and pledged grants. The Friend of
Democratic Pakistan Meeting and Donor Conference held in Tokyo in April 2009 helped in
mobilising pledges of $5.7 billion. Approximately $1.0 billion, mostly in shape of project loans,
were disbursed in 2009/10. Additional budgetary grants are anticipated to be around 0.2 percent
of GDP which amount to Rs 40 billion each year over the medium-term.

(Special Reports)

Tax Revenue:

Classification 2010-11 2011-12 Increase%

TAX REVENUE ( I + II) 1,778,715 2226642 25.18
I. Direct Taxes 657,700 814649 23.86
Income & Corporate Tax 633,000 783834 23.82
Workers Welfare Tax 20,000 25467 27.33
Workers Participation Fund  
Capital Value Tax 4,700 5348 13.79
Wealth Tax  
Other Tax  
Foreign Travel Tax  
Foreign Travel Tax(Arrears)  
II. Indirect Taxes on Commodities and Transactions 1,121,015 1411993 25.95
Customs 180,800 203828 12.73

17
 Sales Tax 674,900 840689 24.56
Federal Excise 153,600 183281 19.32
Other Taxes(ICT) 1,640 1788 9.05
Airport Tax 75 81 9.29
Airport Tax(Arrears)  
Surcharges  
Natural Gas  
Carbon Surcharge on POL  
Petroleum Levy 110,000 182326 65.7

140

120

100

80
2010-11
60 Column1

40

20

0
Direct Taxes Indirect Taxes Total Tax Revenue

18
 Tax Revenue
0.37
Direct Taxes
Indirect Taxes

3.2

Now let’s have a look at Tax Revenue for the fiscal year 2010-11. The total Tax collection was
Rs 1,778,715 million. By calculating through average trend analysis, the tax collection for
coming budget is estimated as Rs. 2226642 million showing an increase of 25.18%. As the direct
taxes are concerned, the balance of the current year is Rs. 657,700 million, and last ten year
average gave us a figure of Rs. 814649 million showing an increase of 23.86%. Indirect tax for
2010-11 were Rs 1121015, and by analyzing last ten year data, the indirect tax figure comes as
Rs 1411993 that shows increase of 25.95% from the last year.

Reasons of non-payment of Taxes in Pakistan:

Mohammed Ashraf explained in one of his articles that the reasons of non-payment of taxes and
ignorant attitude are harsh attitude of taxman, literacy rate and lack of tax education, no intention
to pay tax from the earnings, afraid of coming into tax net, loopholes tax legislation, competitive
corporate tax rate under global tax competition, personal income tax structure and utilization of
tax money.

19
Suggestions for improvement:

Mohammed Ashraf then presented the following suggestions in this regard:

• Legislators need to improve the basic structure of Sales Tax Act, 1990 to make it
taxpayer friendly. Every problem in the Sales Tax Act, 1990 is solved either through a Circular
or SRO which complicates the issue. It is suggested that the Sales Tax Act, 1990 need to be
restored right from the scratch bearing the existing Sales Tax Structure, Problems, Organisational
Structure of Sales Tax Department, Long/Short term Macro and Micro Economic policies in
mind. In furtherance, CBR need to work on Excise Tax and this requires a clear indication from
the government either to abolish it and replace it with Sales tax or Continue with Excise Tax.

• In the small towns and cities, Government needs to increase the literacy rate as this is
something beyond the ambit of CBR, however, in major cities CBR needs to increase the tax
literacy rate. This does not only involve creation of taxpayer facilitation centre and the
advertisement in the newspapers and television but something more than that like TV dramas,
training by CBR to taxpayer – Compliance expected by CBR, Avoid paying additional taxes, Be
Safe and Secure in terms of Inadmissible taxes, The Direct/Indirect Tax Regime etc.

• TV Drama may include normal taxation problems, common misconceptions of peoples,

problems normally faced by the ordinary taxpayers etc. The training will serve two purposes for
the tax management purposes. CBR will get first hand information from the taxpayer and their
representatives to solve their problem without requiring a middle man. In future, there will be no
need to revamp the law after a span of long time as this process will continue to educate the two
actors of a process – Taxman and Taxpayer.

• Another most common problem is the lack of intention to pay taxes. This lack of
intention is based on the loophole in the taxation laws. This argument is based on the concept
that when a law requires a person to get itself registered with the respective tax authority. For
instance, there is no requirement in Income Tax Ordinance, 2001 for registration of a person
under the law; however, the requirement is for filing of Income Tax Return. The Taxation

20
Structure Task committee needs to look at the most common problem, from CBR point of view,
of ascertaining the point of time of registration.

• The most common problem of CBR is that people are afraid of coming into the tax net
owing to variety of reasons. People are afraid about their past, this is their prime concern, as they
do not know what will be going to happen with them about their past. However, a number of
immunity schemes had been introduced for the taxpayers in the past but nothing specially have
been planned for bringing the new taxpayers into the tax net.

• Tax utilization is the most critical area which needs some thought with the passage of
time. This aspect has two aspects, micro and macro level. From micro aspect, what the benefits
existing taxpayers is getting? And what the benefits will a prospective taxpayer may get? These
two questions need to be answered in order to increase the tax GDP ratio. From macro aspect,
what is the formula and basis of utilization of tax money? Is the Government authorized to use
the money for debt servicing of the past loan or it needs to be utilized for the benefits of the
citizens – These key question are some sort of policy decisions which needs to be taken at the
strategic governmental level not at tactical level – CBR. Tax structure task committee may
submit these queries as part of their recommendation.

• Governments must recognize that corporation tax rates must be internationally

competitive if they want to attract and retain companies and jobs. But cutting tax rates is an
ongoing process in order to stay competitive. Pakistan’s corporation tax rates are much higher
than the OECD averages. It is worthwhile here to note that between 1996 and 2003, average
corporate tax rates in EU member states fell from 39% to 31.68%, and in OECD countries from
37.5% to 30.79%. This overview of trends in corporate tax rates around the world suggests that
how countries are seeking to provide a competitive environment for business.

• In order to gain the advantage of geo strategic location of Pakistan, committee must
suggest a drastic corporate tax rate reduction pre-requisite for seeking the requisite increase in
share of international and European corporate headquarters.

21
• Middle and low income earners in particular have been hit hard over the past few years
by the introduction of the goods and services tax (GST) and by bracket creep, as demonstrated
by a recent OECD report into the taxation on wages. CBR thinks that any new tax credit or
deduction from taxable income is a direct loss to the revenue – which is just one side of the
mirror. This was in part aimed at stimulating the economy by encouraging higher consumer
spending. Committee should suggest the induction of medical expense without ceiling and re-
introduction of books and children education allowance.

• To help pay for any reduction in income tax rates for middle and low income earners, the
government should firstly examine whether there are inefficiencies in the way it collects tax and
monitors compliance. A thorough investigation into how efficient the government really is in
collecting tax and identifying tax evaders would no doubt uncover significant additional revenue.
Middle and low income earners should be the ones to benefit from any additional tax revenue
identified through this process.

http://www.defence.pk/forums/economy-development/22908-pakistan-tax-structure.html

Overhauling the Tax Culture:

Tax collections in last some years would appear to be quite impressive in nominal terms but are
woefully short of the expenditure requirements of the country and lag much behind the target
fixed for them. The current political uncertainty in the country has also made the task of the tax
managers much harder. Another difficulty is the commitment with the IMF to bring down the
fiscal deficit of the country which seems not possible.

The overall fiscal situation has almost forced the government to rely increasingly on tariffs on
POL products and slash the PSDP to keep the budget deficit within limits agreed with the Fund.
Not only has this serious implication for inflation rate, infrastructure development, employment
rate and poverty level, but has also distorted price signals in the economy.

22
Obviously, there is an urgent need to redouble the tax collection efforts by expanding the tax net
and eradicate tax evasion from the system. The FBR has been claiming all along to make the
needed moves but, as the data indicate, the results of such efforts have not been encouraging and
tax elasticity continues to be very poor. With a tax-to-GDP ratio hovering around 10 percent, the
country cannot expect to attain a reasonable degree of development and avoid debt accumulation.

Alas, everybody in the country is raising the roof about his patriotic credentials but hardly
anybody is prepared to pay his taxes. The tax culture in the country obviously needs to be
overhauled in a big way to get out of the present morass. This is all the more important when the
frontiers of the country are facing a serious challenge and increasing level of poverty calls for
more fiscal space to meet urgent requirements of the economy.

http://www.defence.pk/forums/economy-development/22908-pakistan-tax-structure.html

Scope for increasing Taxes:

Given the substantially low tax-to-GDP ratio for Pakistan vis-à-vis countries with similar per
capita income, there is considerable scope for increasing taxation in Pakistan. However,
increased taxes will likely have to be traded off against ‘real' improvements in representation and
governance-i.e., incorporating people's collective voice, aspirations, and perceptions in
delineating not only the tax policy but also public policy in general. This means that taxation
arrangements have to fall in line with broadly accepted norms of social justice.

 The media and think tanks can play their role in bringing the normative principles of
distributing the tax burden to the center of the tax reform debate in Pakistan so as to make
those with most ability to pay conscious of the demands on them to fulfill their social
obligations. With extreme disparities in income and wealth distribution in Pakistan, scant
proceeds from direct taxation reinforce the impression that the privileged are above the
law and can evade their tax bills. This imbalance ought to be the first thing undermined
through constitutional, legal, and administrative changes.

23
  Unless there is grass root restructuring of the tax burden in Pakistan followed by visible
improvements in governance, if history is any guide, there will be an inevitable increase
in peoples' struggle against the state, whatever external form-Baloch calls for autonomy,
Pakhtun determination for Nizam-e-adl, political frustrations in South Punjab, etc.-it may
assume. The relevant question to be asked is whether such violence will act as a positive
force in promoting and strengthening the representative and democratic institutions, with
ultimate beneficial consequences for good governance, or thrust the country back into the
era of 1960s, that brought unfortunate results.

Foreign aid has assumed almost irreplaceable proportions in the public finances of Pakistan, to
the extent that, under its cumulative weight, Pakistan is now said to be in a debt trap. By using
the lever of foreign aid, donors have in the past been able to stabilize-strengthen and prolong-
their preferred regimes in this country, military regimes being the most favored, thus
undermining the development of representative, democratic institutions in Pakistan. Again, the
above suggested enhanced taxation and real representation can go a long way in averting the
heavy reliance on foreign aid over time.

http://www.ips.org.pk/pakistanaffairs/economy/1085.html

Indirect Tax Policy Considerations:

Muhammad Ashraf, International Tax Advisor, wrote in one of his articles about indirect tax
policy considerations. He discussed it in detail and gave recommendations as follows:

Indirect taxes include sales tax (Federal and Provincial), excise tax and custom duty broadly
speaking and in one sense can be effectively categorized as consumption taxes. Consumption
taxes have grown to be a major source of tax revenue for governments around the globe. Tax
authorities worldwide are gradually migrating the overall tax burden from direct tax to the less
visible indirect taxes and are the sole big reason of increasing inflation.

24
As now that consumption taxes are taking more prominent role, currently our government is also
more focused on deriving maximum benefit from these taxes like consumption tax policies,
legislation and auditing are all under increased scrutiny by government and tax officials.

Currently, we are moving ahead in the right direction recommended by the World Bank which
covers four broad measures to progressively reform taxation in general.

• Consolidation of the number of taxes

• Cutting back on special exemptions and privileges

• Simplifying filing requirement

• Broadening the tax base by keeping rates moderate in the developing countries

Literacy rate and Tax:

At the moment a consistent indirect policy keeping an eye over literacy rate and geographical
isolation of urban and rural population is not reflective from any document. CBR is not the only
institution which is responsible for reduced tax to GDP ratio. Other institutions are also
responsible for this reduced tax to GDP ration owing to the low literacy rate. There is a dire need
to increase the literacy rate not only to increase the tax to GDP ratio but also the civic sense.

Efforts must not only be concentrated towards illiterates – CBR must work with ministry of
education to include the concept of tax, need for imposing tax, types of taxes in Pakistan, basic
tax calculation of direct and indirect taxes etc in the appropriate portion of syllabus at various
classes or stages at school and college level and do not limit it like a 30 marks portion in B. Com.

25
Tax Machinery:

From the administrative front, he recommended replacing the use of designation of collectors,
assistant collectors, Inspectors, commissioner, taxation officers with assistant manager, manager,
senior manager like tax facilitation manager, tax audit manager and taxpayer care manager. This
will have a deep impact over the mind set of tax machinery. Moreover, there must be a process
of consultation within tax machinery for complex issues and not just throwing the ball for appeal
forums.

The strategy of Excise Tax and Sales tax needs to be principally based instead rule based
facilitation to bring certainty in Business Planning and removal of unnecessary doubts about the
discrimination and transparency issues. Such conflicting rule based facilitation with dimensional
tax legislation makes the excise and sales tax law the most difficult piece of legislation to
comprehend. Strategies are hard to apply and hard to manage, however, principle based strategy
is much easier to apply then a rule based strategy.

TAX ON TAX and RATES OF TAX

Tax on tax needs to be removed and have a considerable effect over consumer price and sensitive
price index issued by state bank of Pakistan. A levy needs to be independent in order to calculate
its impact tax on tax is clearly an impediment for the tax administration owing to the variability
in tax rates. It is worthwhile here to note that rates of tax coupled with tax on tax varies the
prices considerably when the items covered in sensitive price index are now manufactured and
becomes the indispensable part of life of urban population. Removal of tax on tax and reduction
in tax rates of indirect taxes, especially 15% rate of sales tax will greatly relieve the SPI which is
continuously moving upward.

26
RECORD KEEPING

The strategy for prescribing the necessary records should be principle based instead of existing
rule based methodology. In a principle based methodology, the taxpayers can effectively be
categorized as large, medium and small. Large taxpayers normally maintain detailed records not
only for tax purposes but for effective data mining to ascertain their business share in the market
and effective marketing plan for future potential. CBR should prescribe the postulates of their
documents instead of the document itself. Medium taxpayers are requested to closely align their
documentation according to law while the prescription of document method needs to be left for
small taxpayers.

AUDIT

Moreover, the existing audit section needs to be rephrased under one chapter which may include
audit management, taxpayers’ obligation, authorized representative obligation, postulates of an
audit order and time frame to conduct & complete the audit..

TAX REFUND INFORMATION SYSTEM

Taxpayers are still suffering, just because of lack of efficient IT policy which do not use
appropriate system analysis methodology. It is suggested that CBR must consider accepting the
refund related reports in MS Excel format apart from any new software; hence, the most
distinguishing feature of any new software is its capability of importing such MS Excel report.
By this way the taxpayers will be relieved from current practice of hectic data entry.

Moreover, CBR may stick to its current practice of refund claim during current year but must
allow adjustment of refund against various different taxes during same fiscal year – income, sale,
27
excise and custom. A detailed modus operandi may be formulated which may include notifying
different departments etc. This will have a considerable impact not only over the working capital
cycle of business in avoiding liquidity crunch and taking unnecessary high cost loans but also
help CBR in showing true revenue collection less tax refundable.

http://www.accountancy.com.pk/articles.asp?id=175

Classification 2010-11 2011-12 Change

NON-TAX REVENUE 632,279 768,149 21.49
Income From Property and Enterprises 169,985 154854 -8.90
Profits of Pak Telecom Authority 51,100
Profits of Pakistan Post  
Interest (Provinces) 16,638 17511 5.25
Interest (PSEs & Others) 38,032 48470 27.44
Dividends 64,215 88873 38.39
Receipts from Civil Admen and Other Functions 332,250 470,168 41.51
General Administration 788 1060 34.61
SBP Profits 185,000 280042 51.374
Defence 133,463 184397 38.16
Law and Order 1,733 2512 44.95
Community Services 811 972 19.85
Social Services 10,455 11885 13.6
Miscellaneous Receipts 130,044 143127 10.06
Economic Services 2,402 2899 20.73
Petroleum Development Levy  
Gas Development Surcharge 29,995 35835 19.47
Discount Retained on Local Crude Price 12,000
Royalty on Oil 15,500 17646 13.84
Royalty on Gas 32,000 41775 30.54
Passport and Copyright Fee 10,850 13384 23.35
Workers Participation in Profit Tax  
Foreign Travel tax  
Airport Tax  
Others 27,297 31588 15.719

28
 160
140
120
100
80
60
40 2010-11
Column1
20
0

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t

ts
n.
er

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ip
m
op

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ve
ad

Re
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Re
il
civ
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ax
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an
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isc
ip

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In

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To
Re

If we look at Non Tax Revenue, for the current fiscal year 2010-11, the total non Tax collection
was Rs 339,970 million. By calculating average trend analysis, the non-tax revenue is anticipated
at Rs. 768,149 million showing a increase of 21.49% on Total Non Tax Revenue. As far as
Income from Property and Enterprises is considered, the balance of the year 2010-11 is Rs.
169985 million and last ten year average analysis give us a figure of Rs. 154856.1 million
demonstrating an decrease of 8.90%.

For Receipts from Civil Admn and Other Functions, the balance of the year 2010-11 is
Rs.332250 millions, and last ten year average analysis give us a figure of Rs. 480871.5 millions
illustrating an increase of 44.73%. In Miscellaneous Receipts, the balance of current year is Rs.
130,044 million and the last ten year average analysis provides us Rs. 143128.7 millions which is
an increase of 10.06%.

29
Imran Ali Kundi discussed in one of his article that the non-tax receipts of the Federal
Government comprises of the income from property and enterprises (including profits, interest
receipts and dividends from the Government’s investment) receipts from the civil administration,
State Bank profit, and other miscellaneous receipts including royalties, passport fees, recipes of
the federal ministries, divisions and departments.

The Petroleum Levy is a specific duty that is fixed according to the units of consumption of
petroleum products and hence is unaffected by the change in the international oil prices. It is
estimated that the consumption of petroleum products will gradually increase that will result in
increasing the revenue.

http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/21-Apr-
2010/Nontax-revenue-target-set-at-Rs495b-for-201011

External Resources:

( Table on the next page)

30
Classification 2010-11 2011-12 Change %
I. EXTERNAL LOANS (A to F) 286,934 183764 -35.95
A. PROJECT LOANS (1+2) 64,794 88652 36.82
1. Federal Government 39,180 50497 28.18
Ministries/Divisions 26,076 32089 23.06
Corporations/Autonomous Bodies 13,104 18408 40.48
2. Provinces 25,613 38155 48.97
B. PROGRAMME LOANS 80,341 95112 18.3
C. EARTHQUAKE LOANS  
D. GLOBAL BONDS  
E. SUKUK BONDS 55,299
F. FOOD AID  
G. TOKYO PLEDGES  
H. Project Aid 43,250 59402.8 37.34
I. Commodity Aid  
J. Saudi Oil  
K. F-16 Refund  
L. OTHER AID  
EURO BONDS 43,250 64400
Islamic Development Bank 43,250 64400 48.90
China Deposits  
IMF  
II. EXTERNAL GRANTS 99,686 33869 -66.02
Project Grants 13,566 27016 99.14
Federal 7,576 15542 105.15
Provinces 5,772 7479 29.57
Autonomous Bodies 218
Budget Support Grants 7,526 10578 40.56
Earthquake Grants  
Tokyo Pledges Grants 26,694
Other Aid  
Kerry Lugar 51,900
TOTAL (I + II) 386,620 217633 -43.70

31
120

100

80

60 2010-11
Column1

40

20

0
External Loans External Grants Total External Resources

32
If we look at the External Loan, the current year balance is Rs.473, 336 million. By analysis last
ten years average data it is calculated at Rs. 183764 million pointing out an decrease of 35.95%.
As for the External Grant is concerned for the fiscal year 2010-11 the balance was Rs. 113,252
million. By analysis last Ten years, we calculate External Grants by using average trend analysis
as Rs. 33869 million figuring a decrease of 39.18% in the External Grant. For the total external
resource, the balance of the current year is Rs. 586,588 million and last ten year average give us
a figure of Rs. 217633 million, a decrease of 43.70%.

External Debt and Economic Growth: Empirical Evidence from Pakistan

An article on, External Debt and Economic Growth: Empirical Evidence from Pakistan, is
written by Shahnawaz Malik, Chairman Department of Economics, Bahauddin Zakaryia
University, Muhammad Khizar Hayat, Corresponding Author Department of Economics,
Bahauddin Zakaryia University and Muhammad Umer Hayat Graduate Student (International
relations & Political Security). They discussed their views as follows:

To analyze the effect of external growth on the economic performance of Pakistan It has relied
much on foreign debt to finance its balance of payments deficit and saving investment gap. This
heavily dependence on external resources became uncontrollable in late 1980s. It is assumed that
external debt can help the developing countries to meet developing needs of those countries. But
external debt did not contribute its due role in case of Pakistan. This was due to mismanagement
of the external debt. Now the external debt has become one of the major hurdles in the economic
development of the country. The country has to spend his major portion of its Balance of

33
Payments to serve its external debt. Pakistan has to agree upon many unfavourable conditions
posed by IMF and World Bank. Pakistan has to narrow down its international trade because the
country has to save its BOP to meet debt servicing needs of the country. Primary objective of
external debt in case of Pakistan was to boost development activities. This could also be financed
through increased export earnings spearheaded by an export-led growth strategy.

 Availability of external finance should be consistent with a policy framework that is

credibly maintained (fiscal stance, exchange rate policy, interest rate policy, pricing
policy, etc.).
 The policy makers should create credibility including political will in order to spur
investor confidence for both local and foreign investments. Pakistan is facing many
problems like political instability, terrorism etc because of which the country has lost its
confidence for investors. The need of the day is to re-build that confidence so that the
investor may invest in the country and the country can get rid of heavy reliance on
external debt.
 Pakistan still has a chance of overcoming its external debt problems by cultivating the
right policies, but will need considerable support through debt relief/reduction initiatives.

http://www.eurojournals.com/irjfe_44_07.pdf

External Pressures:

In Dailytimes, Dr Hasan Askari Rizvi, a political and defence analyst, dicussed about the
external pressures of Pakistan and presented the solution. He discussed his views as follows:

Pakistan is under a lot of pressure from external world especially India and USA. We need to
focus on our own sources so as to develop the capacity to resist external pressures and exercise
policy options with greater autonomy. Pakistan’s strengths and weaknesses are primarily linked

34
to its internal situation. It is pointless to expect that the rest of the world will pursue foreign
policy to the satisfaction of the Pakistani government and Pakistan’s political leaders and parties.
Each country pursues its foreign policy and adopts strategies to withstand the pressures
generated by other states or takes appropriates steps to pursue its objectives and interests within
an interdependent international system. Pakistan’s capacity to charter an autonomous course of
action in its internal affairs and interaction with the rest of the world depends on the strength of
its economy, internal political and social cohesion, and minimum internal security and stability.
The military security also relies primarily on these pillars. There is little realization in Pakistan’s
political class that unless they work together to address the above mentioned issues, the
international community cannot ‘rescue’ Pakistan beyond a limit to be determined by them.
There is no use lamenting external influence on Pakistan’s policy choices in domestic affairs and
foreign policy. There is no country in the world that is absolutely free to do whatever it wants to
do. It has to pursue its national goals in an unequal and interdependent world. Pakistan’s
sovereignty is not protected by confrontation with the west and India but by building up internal
economic strength, political and social harmony, and promoting a knowledge-based tolerant
society.

Pakistan’s current economy is heavily dependent on external economic assistance — grants and
loans — and transfer of funds — remittances — by overseas Pakistanis. The socio-economic
development programmes rely heavily on external support. This type of dependence limits
Pakistan’s choices. Therefore, Pakistan has to shift the economy’s reliance from external to
internal sources and cultivate a trade, investment and market-oriented relationship with the rest
of the world. Pakistan’s ongoing economic decline, if not checked, will not merely cause the
federal government to fail but can cause the collapse of the Pakistani state. All political parties
and societal groups are going to be adversely affected. The federal government has decided to
reduce the size of the federal cabinet. Punjab and Sindh’s chief ministers have also reduced a
number of political appointees. This not only rationalizes government spending and establishes a
good precedent for economical use of state resources. However, Pakistan’s economic
predicament is not resolved merely by reducing federal and provincial cabinets. More serious
efforts will have to be made by the government, political leaders and society to salvage the

35
faltering economy. If the political leaders do not mobilize the people for accepting difficult
economic decisions, the government cannot opt for economic and administrative restructuring.
The acceptance of some hardship at this stage saves the people and the country from economic
and political disasters in the future. If the Pakistani state does not stay economically afloat, the
whole political class will be the loser.

http://www.dailytimes.com.pk/default.asp?page=2011%5C02%5C06%5Cstory_6-2-
2011_pg3_2

Chapter: 4
s Provincial Share in Federal Revenue Receipts

CHAPTER - 4 "PROVINCIAL SHARE IN

FEDERAL REVENUE RECEIPTS"
TABLE -11 "SHARE OF PROVINCES IN
FEDERAL REVENUE RECEIPTS"    

Classification 2010-11 2011-2012

Income Tax 352,667 463,842 31.52405

Capital Value Tax 2,645 3,765 42.34769

Sales Tax ( net of 1/6th ) 328,630 426,414 29.75513

36
 1/6th of the Sales Tax   0

Federal Excise (Net of Gas) 82,346 99,330 20.62498

Customs Duties 99,490 121,516 22.13854

Royalty on Crude Oil 15,037 19,088 26.93989

Royalty on Natural Gas 29,439 40,998 39.26334

Surcharge on Gas 27,061 30,550 12.89432

Excise Duty on Natural Gas 7,144 7,779 8.881632

GST on Services 89,183 232,593 160.8043

1,033,64
Total 2 1,445,875 39.88160

PROVINCE-WISE SHARE   0

Punjab 494,257 617,470 24.92893

Sindh 279,630 351,554 25.72096

NWFP(Khyber Pakhtunkhwa) 160,359 210,014 30.96499

Balochistan 99,398 132,080 32.87947

1,033,64
Total 2 1,311,118 26.84449

Share of provinces in Federal Revenue:

37
 140

120

100

80
2010-11
60 Column1

40

20

0
Punjab Sindh Balochistan Pakhtun Khwa

Provincial Share in Federal raevenue of 2011-12

10%

16% Punjab
Sindh
Khyber Pakhtunkhwa
47%
Balochistan

27%

National Finance Commission (NFC):

38
NFC is established by law for the smooth and judicious re-distribution of resources collected by
centre according to the need and goals for development of federation and federating units. The
Constitution provides for a new NFC Award to be made every five years. This ensures
predictability, while leaving room for adjustments to be made in accordance with changing
circumstances.

The NFC Award has three components:

1. Divisible Pool – This comprises all major federally collected taxes (including personal
and corporate income tax, GST on goods, customs duties, etc).

2. Provincial Origin Revenue – Revenue that originated in the provinces but was collected
by the federal government, e.g. income from gas royalties.

3. Special Transfers – These are lump-sum transfers in the form of grants or loans, with or
without conditions attached, that the federal government makes to select provinces to meet
particular needs.

Allocation of Resources between the Federal Government & Provinces, an important

development in public finances is the recent agreement between the federal and provincial
governments on the 7th National Finance Commission (NFC) Award. Only the fourth
successfully concluded in Pakistan’s entire 63‐year history, and the first in the last nineteen
years, the NFC Award lays the basis for resource distribution between the Center and the
Provinces (vertical distribution), and between the Provinces (horizontal distribution).The last
award was adopted in 1997 for a period of five years. However, after its expiry in 2002,
agreement on the award was amended under the Distribution of Revenue and Grant‐in‐Aid
Amendment Order 2006. Under this ad hoc arrangement, the share of provincial governments in

39
the federal divisible pool was increased starting 2006‐07 annually to 41.5, 42.5, 43.8, 45.0 and
46.4 percent thereafter in coming years. The distribution of resources and fiscal equalisation
transfers are a contentious issue around the world. In Pakistan’s case, the NFC award has
historically been based on the single criteria of Population. The 7th NFC Award marks a
watershed since it has adopted by consensus a set of multiple criteria for determining horizontal
distribution of resources (see Box).

Box‐1: Salient Features of 7th NFC award.

1. The distribution of resources has been made on multiple criteria instead of single criteria of
population.

2. The agreed sharing of the divisible pool will now take place on the basis of the following:

• Population 82.0%

• Poverty and backwardness 10.3%

• Revenue collection / generation 5.0%

• Inverse population density 2.7%

3. Federal Transfers to the provincial governments on the basis of the percentage specified
against each

Existing 7th NFC Award

Baluchistan 7.17% 9.09%

Khyber Pakhtunkhwa 14.88% 14.62%

Punjab 53.01% 51.74%

40
Sindh 24.94% 24.55%

Total 100.00% 100%

Source: Provincial Finance Wing, Finance Division.

4. In vertical distribution Federal government has allowed an increase in the share of the
provinces with 56 percent for first year and 57.5 percent for the remaining years. The share of
the Federal Government in the net proceeds of divisible pool shall be 44 percent during the
financial year 2010‐11 and 42.5 percent from the financial year 2011‐12 onwards.

5. In addition, the Federal government agreed to a reduction of collection charges from 5% to

1%, increasing the pool for distribution by 4%.

6. Baluchistan will receive 9.1 percent instead of 5.1 percent and will receive total Rs. 83 billion
for the first year. Any shortfall in this amount shall be made up by the Federal Government from
its own resources.

7. One percent of the net proceeds of divisible pool taxes shall be assigned to government of
Khyber PakhtunKhwa to meet the expenses on war on terror.

8. Each province shall be paid in each financial year as a share in the net proceeds of the total
royalties on crude oil an amount which bears to the total net proceeds the same proportion as the
production ofcrude oil in the province in that year bears to the total production of crude oil.

9. Each Province shall be paid in each financial year as a share in the net proceeds to be worked
out based on average rate per MMBTU of the respective province.

10. There shall be charged upon the Federal Consolidated Fund each year, as grants‐in‐aid of the
revenues of the province of Sindh an amount equivalent to 0.66 % of the provincial share in the
net proceeds of divisible pool as a compensation for the losses on account of abolition of octroi
and zilla tax (OZT).

41
11. It has also been recommended in NFC award that the Federal government and Provincial
governments should streamline their tax collection system to increase their revenues in order to
achieve 15 percent tax to GDP ratio by the terminal year i.e. 2014‐15.

12. Similarly Federal Government and Provincial governments would develop and enforce
mechanism for maintaining fiscal discipline at the Federal and Provincial levels through
legislative and administrative measures.

Source:

http://iaoj.wordpress.com/2009/12/07/pakistans-national-finance-commission-nfc-awards-a-
tool-to-exploit-sindh/

Pakistan’s National Finance Commission (NFC) Awards – A tool to exploit Sindh

By Naseer Memon (English Translation by: Khalid Hashmani)

The critical inequities of the NFC award lie in three areas – first it is distributed solely on the
basis of population, second it covers almost all of the revenue generation in Pakistan, and third it
enables the federal government to keep a lion’s share for itself.

Pakistan is the only country in the world where the distribution of income/resources to provinces
is done only on the basis of population. Other countries not only take population into account but
also consider other criteria such as poverty, natural resources, revenue generating capability, and
extent of development requirements to ensure an equitable and fair distribution. For example, in
the neighboring India, the only 22.5% of distribution of income tax collected by the federal

42
government is done population basis. Similarly, only 25% of Excise duties collected by the
federal government are done on the basis of population. These shares have been adjusted during
various times depending upon the changing conditions. Among other countries, Argentina,
Nepal, Mexico distribute only 65%, 20%, and 50% respectively.

There is no justification to use the population as the sole criteria for distributing revenues to
provinces in Pakistan. One apparent reason that all three small provinces vigorously talk about is
that this criteria enables Punjab to get the maximum share of country’s resources. Using this
criteria Punjab secures 56%, Sindh gets 23%, North-West Frontier Province (NWFP) gets
13.5%, and Balochistan receives about 5%.

Looking at an overview level and doing a broad analysis of only high-ticket items, it would
appear that Punjab, which has about 56% of Pakistan’s population, is using 65% to 70%
resources of Pakistan. It is imperative that NFC award mechanism and processes be changed so
that provincial share in the NFC award (and corresponding expenditures) would be increased to
80% and the remaining 20% be allocated to the Federal government to cover the federal
responsibilities. Any thing less that would mearly be cosmetic changes and fail to alleviate the
problems of Pakistan. Another urgent issue that needs to be resolved is the rationalization
royalties and surcharges related to oil and natural gas produced in Pakistan. These items should
be removed from the divisible pool and be transferred directly to the producing provinces.
Article 16 (1) of Pakistan constitution clearly states that these royalties and surcharges are
excluded from being a part of the divisible pool.

There is a need for inclusion of other factors like infrastructure, poverty, backwardness, revenue
generation, environment, etc. to be taken into account for justifiable of resource distribution.
While announcing NFC award the government should give proper importance to following
factors which are exercised in the rest of the world. The factors that can be incorporated are:

43
 (1) Backwardness and development gap.
(2) Inverse income distribution (rural urban income disparity).
(3) Natural resource endowment.
(4) Revenue generation/revenue collection.
(5) Population density.
(6) Poverty.
(7) Area.
(8) Non-formula transfers.
(9) Environmental consideration.

The share which provinces want:

The Punjab government desires a population based formula, Sindh wants revenue generation to
be the basis, Balochistan and NWFP desire area and level of development of the province to be
the basis. Some of the differences projected by smaller provinces are: the share of small
provinces be increased, the share of the federating units be increased at the price of federation
that has comparatively more channels to generate revenues. Sharing of revenue be done under
multiple criteria of different factors like population, poverty and backwardness of the province,
area of the unit, revenue generation not collection and overall contribution of the province
towards the national development. The NWFP government has been demanding 80 per cent
weight for population, 19 per cent for backwardness and one per cent for Inverse Population
Density (IPD), but no weightage to revenue generation. Balochistan province demands 100 per
cent of the GDS because the resources are generated in Balochistan. On the division of vertical
sharing of the resources, the Federal government is suggesting a structured and step by step
approach to provinces to increase their share in the federal divisible pool to 50% in a phased
manner under the 7th NFC Award. This means that provincial share of FDP would start from
48% or 48.5 % in the first year of new NFC. This would be increased every year reaching 50%

44
in 2009-10 but the provinces say the formula simply offered an escalation cost and if the step by
step approach to be adopted, it should be structured in a way that it starts with 50:50 percent in
the first year and touches 52.5% for the provinces by 2009-10.
The stubbornness and lack of flexibility on the part of provinces has played a major role in not
achieving the consensus on the seventh NFC due to be notified after July 21, 2005. The
government is earnestly trying to resolve the grievances of the affected provinces and has
decided to give a fresh and final opportunity to the provinces to reach consensus on National
Finance Commission (NFC) Award. Now it requires subtle political strategy and management.
The Federal Government has promised fair distribution of resources in the new National Finance
Commission (NFC) Award due to be notified in September 2005. The prevailing economic
situation of the country demands sacrifices for the sake of national integration and cohesion
amongst centre and all the four provinces. It is high time that all the provinces set aside their
idiosyncrasies and work out a consensus which suits all. There comes a time when we have to
sacrifice personal gains for the sake of the country, and we must always keep in mind that
‘Pakistan comes first’.

Salvaging the 7th NFC Award Article:

Dr Ashfaque H Khan, director general and dean at NUST Business School, Islamabad, wrote an
article about 7th NFC Award in which he concluded:

The only way we can take the economy out of the current crisis is to maintain financial
discipline. Financial discipline is the sine qua non for economic prosperity. Can any government
succeed in maintaining financial discipline in the post-7th NFC Award situation and following
the 18th Amendment? Will we be more fiscally responsible in the decentralised setup? These
questions are vital for Pakistan’s future macroeconomic management.

Pakistan’s macroeconomic stability will depend crucially on the financial discipline of the
provincial governments going forward. Under the 7th NFC Award, 56 per cent of tax resources

45
will be transferred to the provinces this year and 57.5 per cent in the remaining years of the
Award. Including other transfers, almost 60 per cent of the resources will be transferred to
provinces, which have little financial discipline and capacity to spend prudently.

The massive transfer of resources to provinces is taking place at a time when the federal
government’s legitimate expenditure is growing rapidly. For example, interest payments were
more than doubled in the past three years (from Rs365 billion to over Rs800 billion this year),
surging security-related expenditure on account of geo-strategic developments and the war on
terror, power-sector subsidies reaching over Rs175 billion, and rotten public-sector enterprises
draining over Rs250 billion per annum from the federal exchequer. We have not taken rapidly
increasing expenditures of federal government into account. We have not left sufficient resources
for the federal government to meet its growing legitimate expenditure.

The deficits of both the federal and provincial governments together provide overall or
consolidated fiscal deficit for Pakistan. Historically, the federal government’s budget has always
been in large deficit. Provincial governments used to generate cash balance surplus to arrive at a
targeted consolidated budget deficit. For example, in Budget 2010-11 (the first budget under the
new NFC Award), the budget deficit of the federal government was targeted at 5 per cent of the
GDP and provincial governments together were expected to generate 1.0 per cent of GDP
surplus to arrive at a consolidated deficit of 4.0 per cent of GDP.

The provincial governments, instead of presenting surplus budgets, presented deficit budgets,
despite the fact that additional resources of over Rs500 billion were to be transferred to them. As
a result, Budget 2010-11 never saw the light of the new fiscal year and died prematurely.
Presenting deficit budgets in the midst of massive transfer of resources was the height of fiscal
indiscipline on the part of the provincial governments. Pakistan’s future fiscal deficit will be
determined by provincial governments. In other words, Pakistan’s macroeconomic management,
economic stability, growth and development have now been shifted to the provinces, where
financial indiscipline reigns.

46
Pakistan can come out of the present economic crisis only if it maintains financial discipline by
keeping the budget deficit low. In its present form of resource transfer under the NFC Award,
this is next to impossible. Unless some hard constraints are put in place, in the form of binding
the provincial governments to deliver required surpluses to meet the consolidated budget deficit
target, Pakistan’s economic conditions will continue to deteriorate. The federal and provincial
governments must sit down, for the sake of Pakistan, to devise binding constraints and get them
approved by the National Economic Council. The sooner we move, the better it is for the
country.

CHAPTER - 5

CURRENT EXPENDITURE

The estimates for 2010-11 on account of current expenditure were Rs 1,997,892 million. For
2011-12, the current expenditure has been estimated at Rs 4,952,444 million, showing an
increase of nearly 48%.

47
Classification 2010-2011 2011-2012

General Public Service 1,387,664 2,375,851.265

Defense Affairs and Services 442,173 520,626.7168

Public Order and Safety Affairs 51,263 63,050.008

Economic Affairs 66,897 246,420.23

Environment Protection 448 585.00107

Housing and Community Amenities 1,842 2238.8561

Health Affairs and Services 7,283 8719.71057

Recreational, Culture and Religion 4,359 5979.76871

Education Affairs and Services 34,500 96850

Social Protection 1,463 5099.0982

 
Total 1,997,892 3,325,420.65

48
 Current Expenditures Distribution
6%
7%

General Public Services

Defence affairs
16% Economic Affairs
Others including education &
Health Affairs

71%

The bulk of expenditure has been placed under General Public Service. The expenditure against
this head has been budgeted at 71% of current expenditure, while 16% for Defence, 7% for
Economic Affairs and 6% for other services have been allocated in the budget estimates 2011-
12.

49
 GENERAL PUBLIC SERVICE

5.4 The details under general public services are given in table 12.

2010-2011 2011-2012 Increase or

GENERAL PUBLIC SERVICE Decrease %

Executive & Legislatives Organs,

Financial....... 1,090,236 1,496,940.194 37.304

Superannuation Allowance and Pension 90,680 105335.62 16.161

Servicing of Foreign Debt 76,797 90669.294 18.063

Foreign Loan Repayments 174,369 227142.14 30.265

Servicing of Domestic Debt 621,759 840232.82 35.138

Others 126,630 233560.32 84.443

Foreign Economic Aid 103 131.3589 27.53

Transfer Payments 227,168 374016.39 64.643

General Services 2,488 3049.2003 22.556

Basic Research 2,267 2799.2666 23.478

R&D General Public Services 5,665 6694.2011 18.167

Administration of General Public Service 1,254 2504.8043 99.745

General Public Services(not defined

elsewhere) 58,483 256155.53 338

Total 1,387,664 2,375,851.265 71.212

50
5.5 Under General Public Service, the major portion gives to executive & legislatives organs,
financial and fiscal affairs. At Rs 1,496,940.194 million, it forms 63% of the allocation of Rs
2,375,851.265 million. The main heads of expenses are superannuation allowances and pensions,
domestic and foreign debt servicing. Other major item is the transfer payments.

Executive & Legislatives Organs, Financial:

Servicing of foreign debt:

A well managed debt policy is required to maintain a sustainable debt level. 

To achieve this goal, the first step should be the identification and neutralization 
of the fundamental causes of the growing debt burden of the country (Zaiby, 2010).

Historically, external debt has been a cheaper source of borrowing for Pakistan. However, rupee
depreciation against dollar has had a massive impact on the cost of borrowing in various years.
SBP report indicates that during the last decades, unsustainable commercial borrowing imposed
a heavy burden on external payments. Large current account deficits, stagnant export revenues
and declining workers’ remittances, effectively forced the economy into an unsustainable
situation.

Debt servicing has become the largest single item of expenditure in the government budget
reflecting the combined impact of increase in the volume of domestic and foreign debt, rise in
domestic interest rates and depreciation of the rupee. Debt service payments constituted about
half of the total current expenditure and consumed about three fourths of gross tax revenues. The
amount spent on debt servicing was about three times larger than defense expenditure.

According to the Annual Report (2009-2010) of the State Bank of Pakistan total population of
Pakistan is 166 million, every Pakistani citizen was burdened with government debt of Rs54,855,
about 44 per cent of which was due to be paid in foreign exchange to foreign governments and
agencies.

51
As in Business & Finance Review, a weekly magazine, Parveen Zaiby stated that the permanent
solution lies, however, in an overall restructuring of the economy, in a medium to long term
macroeconomic framework, with the main objective of reducing the debt burden to manageable
levels. Reliance on external debt for financing budget deficit and subsequently increase pressure
on foreign exchange reserves and depreciation of rupee can be prevented by rationalization of
import and providing efficient banking services to expatriates for foreign remittances, because
cost of debt repayment would increase with the rise in interest rate and depreciation of rupee, as
more resources are required. A well managed debt policy is required to maintain a sustainable
level of debt stock. To achieve this goal, the first step should be the identification and
neutralization of the fundamental causes of the growing debt burden of the country.

http://app.com.pk/en_/index2.php?option=com_content&do_pdf=1&id=78553

Economists said that huge payments under the debt servicing and depleting reserves have also
put a negative impact on exchange rate, which was at Rs 60-61 to the dollar in fiscal year 2008
relative to Rs 80 to the dollar in fiscal 2009.

The strategy paper prepared by Finance Ministry suggested that the Prudent Debt Management
techniques had to be adopted to reduce the burden of debt servicing over the medium-term.
These Prudent Debt Management Techniques include obtaining soft loans with low interest rates
from external resources.

http://pakistan247.blogspot.com/2010/03/weak-rupee-adds-rs17bn-to-debt.html

Servicing of domestic debt:

Domestic debt is accumulated through internal borrowings by the government from private
individuals, banking and non-banking financial institutions in order to finance overall deficit in
the budget after taking into account financing from external loans, essentially raised to
supplement domestic resources. The banking system (including SBP) holds about 49 per cent of

52
total domestic debt while 51 per cent is held by non-banks. Domestic debt normally poses
difficulty for the budget, because domestic financing of budget deficit induces inflation and leads
to crowding out of private investment, which causes major macroeconomic imbalances.

Domestic debt consists of the following:

(a) Permanent debt-consisting generally of long-term, relatively less costly debt investments like
market loans etc.

(b) Floating debt-consisting of short-term, relatively more costly debt instruments like treasury
bills.

(c) Unfunded debt-consisting of national savings scheme.

Pakistan’s total public debt stood at an estimated Rs. 8,160 billion as of end-March 2010. At this
level, public debt is equivalent to 56% of GDP, and 379% of total budgeted revenue for the year.
Of the total, Rupee denominated debt amounted to 31% of GDP, while foreign currency
denominated debt was the equivalent of 25% of GDP. The bulk of the increase in public debt in
has been recorded under higher-cost domestic debt, with the government forced to borrow from
the onshore credit markets in the absence of meaningful flows of external assistance, barring
disbursements under the IMF loan. Another source of increase has been the depreciation of the
Rupee against the US dollar between July 2009 and March 2010, amounting to 4.4%. The
weaker Rupee added 17% to public debt in the first nine months of the year. Public debt has
risen rapidly since 2005-06. The primary sources of accumulation in the public debt stock since
2005-06 have been:
 Currency translation losses on foreign exchange-denominated debt.
 Non-recognition of large subsidy payments to the oil and power sector from prior years
that were absorbed in the budget in 2007-08 and 2008-09;

53
  A sharp reduction in non-debt creating inflows, such as FDI, in the wake of the global
financial crisis;
 The augmented access to IMF resources provided to Pakistan in the form of the Stand By
Arrangement (SBA) signed in November 2008, amounting to a total of US$ 11.3 billion,
of which approximately US$ 7.3 billion has been disbursed;
 Overall, a lower inflow of external assistance, which forced the government to higher-
cost domestic borrowing;
 Lumpy repayment of maturing Defense Savings Certificates (DSCs) since 2007, that had
not been budgeted for;
 The inability of the government to take advantage of the historically low interest rate
environment in the 2003 to 2007 period, by locking into longer tenure debt such as the
five- and ten-year Pakistan Investment Bonds (PIBs).

In the context of a rising stock of public debt, it is important to make the nexus between, on the
one hand, the weak tax effort that has characterized Pakistan’s policy landscape for the last
several decades, and on the other, the reversal of the favorable debt dynamic that had been set in
motion earlier.

“A broad expansion in domestic debt poses significant negative connotations for private
investment, fiscal sustainability and, ultimately, economic growth and poverty reduction in case
of thin financial markets and poor debt management capacity,” the finance ministry strategy
paper said.

Recommendations:
An immediate cut back in taking more loans is demanded. Debt servicing of both foreign and
domestic debt as well as foreign loan repayment excessive burdens are negatively affecting the
economy.

54
DEFENCE AFFAIRS AND SERVICES

5.6 Details of estimates of expenditure on Defence Affairs and Services in 2010-11budget and
2011-12 (budget) are given below:

TABLE – 13
DEFENCE AFFAIRS AND SERVICES

Defense affairs and services 2010-2011 2011-2012 2011-12 %

Defense Administration 1,427 1802.8668 26.339

Military Defense 440,746 518,823.85 17.715

Employees Related Expenses 176,726 218455.52 23.612

Operating Expenses 111,240 127500.91 14.617

Physical Assets 119,370 135129.19 13.201

Civil Works 34,664 39736.382 14.633

Less Recoveries -1,254 --1998.1488 59.342

Total  442,173 520,626.7168 17.743

Defense affairs and services:

55
A defense affair is very important head of expenditures because it includes those activities which are
related to save and protect the integrity, sovereignty of a country and defending the geographical
boundaries.

The security situation in Pakistan has deteriorated and therefore, the spending on military has
increased many folds. The increase in defense spending is necessary keeping in mind the current
law and order situation and the fact that our military is involved in active counter insurgency
operations funded by our enemies. The operations in different parts of NWFP including Swat
results in heavy expenditure therefore, the government should increase the budget as well.

http://www.pro-pakistan.com/2009/06/09/pakistan-defense-budget-2009-2010/

Pakistan Defense Budget is as much important as the remaining budget since our Defense budget
make up a huge part of our national budget. Indian Defense budget is around 2% of the GDP
while Pakistan’s military budget is approx 3.5% of our GDP.

“Security is our topmost concern,” the newly-inducted Finance Minister, Abdul Hafeez Sheikh,
announced in his budget speech, saying: “We are facing a situation in which our armed forces,
paramilitary forces and security forces are laying down their lives … They should know from
this House that we all stand by them.”

Economic Cost of Terrorism

Group Capt. Sultan M. Hali (retd), Sitara-e-Imtiaz (M), is a former Naval and Air Attache at the
Pakistan Embassy in Riyadh. He is also a columnist and the host of a television talk show. He
wrote in one of his column about Economic Cost of Terrorism born by Pakistan in last several
years.

Sluggish Economic Activity: Pakistan’s economy, which was already tottering due to numerous
constraints like the international economic meltdown, political instability and financial
mismanagement, has suffered incalculable damage and is struggling to recover from a deep
56
crisis. According to a recent survey, terrorism has cost the economy a hefty Rs. 380 billion in
2008 alone. Terrorism creates uncertainty, reduces confidence and increases risk perceptions
leading to lower rates of investment and lower economic growth. Pakistan has not only lost
precious lives and infrastructure, but also has borne a loss of around $ 35-40 billion since 2001-
02. These figures are an estimate, but in the absence of any other statistics, will have to suffice
for this study. Both the war on terror as well as rehabilitation of internally displaced persons
(IDPs) consumed a sizeable portion of the government’s financial resources, thus widening the
fiscal deficit and halting economic growth. With the ever looming threat of terrorist violence,
normal businesses require more time and extra security for their transactions. Thus, terrorism
typically leads to a general slowdown in economic activity. The absence of primary data makes
estimating the cost of terrorism to Pakistan even more complex.

Pakistan’s soft image shattered. The government had undertaken a number of initiatives in the
late 1990s and early 2000s to project a soft image of Pakistan as a country that is not only
investor friendly but also one that facilitates its nationals to conduct business with the rapidly
growing economies of the world. Unfortunately, due to the terrorist incidents, the image of the
country has been badly affected. As a result, there has been reluctance on the part of several
countries to issue visas to Pakistanis. This has affected a broad spectrum of society including
businessman, students and professionals who want to study or work abroad and bring productive
wealth back to the country in the form of remittances. There have also been negative
consequences for Pakistan’s trade links with other countries. Simultaneously, investors are
reluctant to visit Pakistan while foreign governments discourage their citizens from traveling to
Pakistan, either for business or for pleasure.

Fall in Domestic Consumption. A major negative impact of terrorism is the fear factor, which
directly affects the consumption trends of society. For reasons of safety and security, people are
afraid to visit the market places as these have been frequently targeted by terrorists.
Consequently there has been a substantial decline in consumption/spending with negative
implications for the country’s economic growth.

57
Reduced Foreign Direct Investment. A Harvard study (December 2008) states that the higher
the risk of terrorism the lower the levels of net FDI and this has been Pakistan’s experience. In
an integrated world economy, where investors are able to diversify their investments, terrorism
has induced large transfers of capital across countries. Pakistan’s exports have reduced from $
19.22 billion in 2007-08 to just $ 1.58 billion in 2008-09 while imports have also fallen. The
trade balance is – $ 4.5 billion. This decline in the country’s exports was primarily due to the
global recession and also because of the negative image of the country. The tragically frequent
incidents of terrorist violence have also caused a fall in the FDI as foreign entrepreneurs

have lost business confidence in Pakistan and this applies as much to local investors who are
wary of bringing their money into their own country. FDI has reduced from $484.7 billion in
2001-02 to $3.21 billion in 2008-09. As a consequence the country’s reserves have also been
depleted.

Conclusion: Pakistan has no option but to win this war, even at the expense of development
expenditure to bring back peace and stability as these are indispensable for sustained economic
growth. The cumulative cost of the war on terror and militancy has been staggering and Pakistan
needs a Marshall Plan-like ‘Lifeline’ to overcome its economic problems. The conclusive defeat
of terrorism will not only benefit Pakistan but also the region and the world. Whereas these are
compelling reasons for the international community to participate in the process, Pakistan needs
to put its own house in order. It has ample resources of its own which, if properly exploited,
could be used to combat and defeat terrorism. The need of the hour is pragmatic leadership,
which is selfless and dedicated to the cause of Pakistan, is willing to sacrifice its own comforts
for the better future of the country; only then the people would be willing to tighten their belts
and unite to defeat the scourge of terrorism. That is when every dollar spent would be justified
because terrorism is the main hurdle in Pakistan’s socio-economic prosperity, political stability,
geostrategic sustainability and energy security. No cost is enough to attain it.

Recommendations:

58
Defence of our country should be strong to fight with all of the threats to the country. But there should be
a way to control the threats rather than spending extravagantly on this item while neglecting Education
and Health Affairs of the country.

PUBLIC ORDER AND SAFETY AFFAIRS

5.7. The following Table provides the details.

TABLE – 14
PUBLIC ORDER AND SAFETY AFFAIRS

Punlic Order & Safety 2010-2011 2011-2012 2011-12 %

Law Courts 1,744 2497.615 43.211

Police 47,760 58166.225 21.788

Fire Protection 89 100.49309 12.913

Prison Administration and

Operation 17 19.295058 13.500

R&D Public Order and Safety 17 35.403774 108.257

Administration of Public Order 1,637 2230.9763 36.284

Total  51,264 63050.008 22.991

Public order and safety affairs:

59
Public order and safety provides increased security and protection for citizens, restoring the
authority of law enforcement structures, decentralization and institutional reforms necessary to
strengthen community services. As public and order situation of our country is worst due to war
on terrorism activities in the country. So the government should have to take steps which make
the country secure from enemies.

Law courts dealing with disputes between individuals and/or organizations, in which
compensation may be awarded to the victim. The estimated average in law courts head is 43%
and we suggest increased by 5% with fair distribution.

Fire Protection Systems focuses on the operational characteristics and abilities of different types
of systems and equipment that are used during fire department operations to access a water
source, apply a suppression agent to control a particular type of fire, provide information
concerning the location of a fire, and more. The government is making approximately 12%
which should be increased to 15%. Because of due to war and terror the condition of our country
is unstable.

It is a globally recognized fact that a state's police and law enforcement agencies play a critical
role as the first line of defense against the threats of terrorism and insurgencies. The police
infrastructure is one of Pakistan's most poorly managed organizations. It is aptly described as ill-
equipped, poorly trained, deeply politicized, and chronically corrupt. Government is making
expenditure approximately 21%, so government should make more expenditure about 25% to
improve this head.

The government is making negligible expenditures on Prison Administration and Operation.

Government should increase this expenditure by 30% as the worst conditions of prisons.

We need police reforms. For the ordinary citizen, it is the police force which represents the face
of the state. And it’s an ugly face. Police in Pakistan is synonymous with oppression, extortion,
highhandedness. The force is plagued by stories of false cases being filed, patronage of criminal
activities, contrived encounters where the accused are slain, and torture. The Police Order, 2002,
60
was a promising start, but it was swept aside after the elections that year. The prosecution
capacity of the state is weak, often venal, and shoddy. Witnesses can often go missing or get
gunned down. Prisons have no set of rules. Those who can afford to keep the warden happy get
preferential treatment. It is also not rare to hear of convicts making a clean escape from prison.
In short, the state of our police service, prisons, investigation and prosecution capacities, and
administration of justice is a scandal. Pakistan is stuck with antiquated Raj-era laws. Recent
initiatives by the National Judicial (Policy Making) Committee, which is chaired by the chief
justice, to reform the lower judiciary and ensure speedy disposal of cases are commendable, but
the jury is still out on whether these will succeed. We need expeditious delivery of justice to
improve citizen confidence and save costs.

www.iba.edu.pk/News/...drishrat/Good_Governance_for_Dummies.doc

ECONOMIC AFFAIRS

5.8 The allocation under this head in the budget 2011-12 has been projected at Rs 246420
million.. The following Table provides the details under this head

TABLE-15

ECONOMIC AFFAIRS

2010-2011 2011-2012 2011-12

Economic Affairs %

General Economic, Commercial and Labor

Affairs 24,603 156742.59 537.087

Agriculture, Food, Irrigation, Forestry and

Fishing 29,821 73039.117 144.925

Fuel and Energy 507 722.97395 42.598

61
 Mining and Manufacturing 1,806 2281.4369 26.325

Construction and Transport 7,503 10272.503 36.911

Communication 1,773 2030.8806 14.544

Other Industries 885 1330.7285 50.364

Total 66898 246,420.23 268.352

Economic, commercial and labor affairs

It includes allocations for general economic, commercial and labor affairs, agriculture, food,
irrigation, forestry and fishing, fuel and energy, mining and manufacturing, construction and
transport, communication and other industries, etc.

The calculated past ten years average amount of this particular head is extraordinarily high due
to inconsistent and not planned allocations. Its means government is providing huge funds to
economic, commercial and labor affairs head. By doing discussion we come to know that the
government is already spending huge amount to this expenditure as compared to others items in
economic affairs head. so, if this amount use it properly then there is no need to spend more on
it because this department play an very important role it monitor country's economic policies and
programmers having a bearing on domestic and international aspects of economic management.

Agriculture, food, irrigation, forestry and fishing:

The average rate of this expenditure is 144% which is a fine growth for Pakistan but as we know
that this head is a source of earning should need little attention toward it. So, by based on our
observation the government should increase 20% in this head and also make smart policies,
planning, research, quality control, training, exploratory fishing, stock assessment, fisheries
management, fleet improvement, data collection and export etc for to make the country progress.

62
Fuel and energy:

The huge problem that Pakistan is facing from past 4 to 5years is energy crisis. The past ten
years average rate is only 42% which is not enough for the present situation prevailing. So,
government should increase by 50% in order to reduce the energy crisis because by having this
problem the main industrial sector of Pakistan is very badly affected.

ENVIRONMENT PROTECTION

5.9 Environment Protection has been provided with Rs 585million for 2011-12 under Water
Waste Management

TABLE – 16

ENVIRONMENT PROTECTION

2010-2011 2011-2012 2011-12

Environment Protection %

Water Waste Management 448 585.00107 30.580

Recommendation:

Water waste management:

63
The provision of adequate water and sanitation are vital to improve living conditions and to
ensure health, educational opportunities, gender equality and social inclusion, produce electricity
and environmental sustainability

There is very little separation of municipal wastewater from industrial effluent in Pakistan. Both
flow directly into open drains, which then flow into nearby natural water bodies. There is no
regular monitoring programme to assess the water quality of the surface and groundwater bodies.
There is no surface water quality standard or drinking water quality standard in Pakistan.
Government of Pakistan is spending 30% of average of last ten years. It shows the fine growth
but needs commitment and proper controls in place.

Housing and community amenities:

5.10 An allocation of Rs 2239 million has been provided in the budget 2011-12 for community
development which is higher by 21.5% against the revised budget for 2010-11.

TABLE – 17
HOUSING AND COMMUNITY AMENITIES

Housing and Community 2010-2011 2011-2012 %age change

 Community Development 1842 2238.8561 21.544

Outlays for Housing and Community Amenities are to improve the access to appropriate housing
for those whose needs are inadequately met through the private rental market. Community
Amenities includes outlays on general promotion and assistance for urban and regional planning
and development and on promotion of national environmental objectives.

64
This head is also an important place in federal budget for development process in developing
countries like ours. Above table is showing the past ten years average trend of 21.5%. It should
have to increase by 5% because community development is essential for economic growth.

HEALTH AFFAIRS AND SERVICES

5.11 Under Health Affairs and Services a total allocation of Rs 8720 million has been made in
the budget estimates 2011-12. This allocation is negligible when compared with budget
allocations of other head. Details are given in the following Table.

TABLE – 18
HEALTH AFFAIRS AND SERVICES

Health Affairs & Services 2010-2011 2011-2012 2011-12 %

Medical Products, Appliances and

Equipment 83 100.83661 21.489

Hospitals Services 6,408 7665.3959 19.622

Public Health Services 522 641.97004 22.982

R & D Health 2

Health Administration 269 311.49902 15.798

 Total  7284 8719.70157 19.7103

Health affairs and services have equal importance in all heads. Health issues and facilities
provided to general public are getting down it should be increased to facilitate more people as
health problems are prevailing in country rapidly. The projected figure is showing that
Government is expecting to increase it slightly but it should be more increased on sound basis to
facilitate regarding health and providing services there should have enough funds for that.

65
There is a need for long term planning with equitable allocations for all three sectors of health
i.e. doctors, nurses and paramedical staff other than allocation in infrastructure development for
the health sector.

In hospitals, especially in the Government hospitals medial equipments and medical products are
not so good. In some hospitals there is no treatment facility because of absence of required
equipment. The projected figure is showing 21% increase expected by Government but it should
be increased by more 5% because it is very necessary to build up this sector.

Hospital services in Government sector is not so good that’s the reason people prefer to go to
private hospitals and have to pay high for their services. Projected figure is showing 19%
expected growth. It is suitable and if necessary then can be increased by 1% is enough for this
but it should be properly allocated and implemented.

Optimal performance of the health sector in Pakistan is primarily because of low level of health
spending. Total expenditure on health as percent of GDP is only about 2 percent of GDP, which
is much lower than other countries with similar income levels. The government contributes about
a third of this and the remaining 70 percent is paid out-of- pocket by citizens at the points of
service delivery.
Medical Conditions Human Resource in health care is not appropriately planned in Pakistan,
with the result that there are more doctors than nurses, lack of trained midwives, urban
concentration, brain drain from rural to urban areas and abroad, along with other issues related to
curriculum, quality of graduates and their continuing supervision. The service structure for health
workers is poorly defined. It favors tenure over competence, largely ignores technical capacities
and does not allow incentives or rewards for performance. There is absence of doctors in
government hospitals and clinics and medical staff only comes to mark their attendance and go
away and are not available at the time of need or emergency. There is a dire need to give proper
attention to this sector on sound basis.

66
 RECREATIONAL, CULTURE AND RELIGION

5.12 In budget 2011-12 an amount of Rs 5980 million has been provided for Recreational,
Culture and Religion. The bulk of the expenditure has been earmarked for Broadcasting and
Publishing which is more than 50% of the total allocation under this head. Details are given in
Table-19.

Recreational, Culture & Religion 2010-2011 2011-2012 2011-12 %

Recreational and Sporting Services 151 874.65778 479.243

Cultural Services 448 565.53544 26.235

Broadcasting and Publishing 2,893 3495.2015 20.815

Religious Affairs 683 799.28489 17.025

Administration of Information
Recreation 184 245.0891 33.200

 Total  4359 5979.76871 37.182

These expenses are related to expenditures on shows, theaters, movies, admissions to museum,
library services and rental of dvds and cds. Budget towards this sector should be at average level
which means not so high and not so low. In this table there is 26% increase in cultural services.
Cultural values are decreasing and there is need to improve this sector so there should be 5%
increase for this.

For broadcasting and publishing the expected budget is showing great allocationwhich should be
decreased by 2%, there is no need to give that much fund for broadcasting.

For religious affairs there is 17% expected growth which should be increased by more 3% because
there is need to flourish the religious values in country.

67
For administration for information recreation the expected growth is 33% which should be
decreased by 3% because for day to day information about opportunities in national forests and
parks there is no need allocate that much of fund so for this purpose.

EDUCATION AFFAIRS AND SERVICES

5.13 The Education Affairs and Services have been provided least importance in the budget of
current expenditures as compared with other heads. The bulk of expenditure has been allocated
for Tertiary Education Affairs and Services in budget. The details are as under:

TABLE – 20
EDUCATION AFFAIRS AND SERVICES

Education Affairs and Services 2010-2011 2011-2012 2011-12 %

Pre-Primary & Primary Education Affairs 3,174

Services
3,155 -0.608115
Secondary Education Affairs and Services 4,232
5,347 26.33576
Tertiary Education Affairs and Services 25,210
66,125 162.2965
Social welfare and special education division 42
39 -8.301377
Subsidiary Services to Education 35
39 10.9822
Administration 1,260
21,611 1615.132
Education Affairs, Services (not elsewhere) 547
534.15 -2.348551
Total 34,500
96,850 180.72

68
Education is the most important sector for the growth of any country. It is the foremost duty of the
state to provide essential necessities which includes education facility as well.

Pakistan’s public spending on education as a percentage to GDP continues to rank at the bottom end
of global rankings, as its spending is (2.1 per cent as GDP percentage) lower than even Nepal that
spends 3.2 per cent of GDP, revealed the Economic Survey-2009-2010. In Pakistan the absolute
amount of budget allocated to education is low. Allocations are least as compared to other
developed and under developed nations due to the intrinsic rigidities in the financial system of
Pakistan, arising from more pressing commitments of the country such that high defense allocations
are required for maintaining security and national sovereignty, resource constraints, large
establishment bills due to a large salaried workforce and heavy debt interest repayments. It is,
therefore, recommended that all efforts should be made to enhance the budgetary allocation to
education. In addition, innovative approaches should be designed to generate additional resources
for increased funds for the education sector, especially to primary education, adult literacy and early
childhood education.

The education in Pakistan is generally divided into five levels: primary (grades one through five);
middle (grades six through eight); high (grades nine and ten, leading to the Secondary School
Certificate or SSC); intermediate (grades eleven and twelve, leading to a Higher Secondary
(School) Certificate or HSC); and university programs leading to graduate and advanced degrees.

Pre-Primary Education is an important component of Early Childhood Education (ECE), Prep or

classes of children having age of 3-4 years. Only 63% of Pakistani children finish primary school
education. Furthermore, 68% of Pakistani boys and 72% of Pakistani girls reach grade 5. In past 10
years, an overall decrease has been observed which is not satisfactory. It should be increased up to
30% to get a better level of primary education. Coming towards secondary education, an increase of
26% is ascertained which is little better than others. It should be properly utilised as secondary
education is very important in a person education as a pre-step of professional or field education.

69
According to the OECD's 2009 Global Education Digest, 6.3% of Pakistanis (8.9% of males and
3.5% of females) were university graduates as of 2007. Pakistan plans to increase this figure to 10%
by 2015 and subsequently to 15% by 2020. An increase of 4-5% is proposed to expand and
modernize vocational and tertiary education as better access; teaching and research are needed at
the tertiary level to equip graduates with the high-level skills needed to build a knowledge
economy. The Higher Education Commission (HEC - a reincarnation of the erstwhile University
Grants Commission), is an autonomous apex body responsible for allocating public funds from the
federal government to universities and DAIs and accrediting their degree programs. While the HEC
primarily funds public universities, it has recently opened a limited number of avenues for making
funds available to private sector universities for research and infrastructure development. The HEC
sector enrolls less than 5% (including colleges) of the age cohort, and compares unfavorably with
countries such as India at 11% and Malaysia at 32%.

In Pakistan, there has invariably been criticism with regard to its establishment spending a huge
amount of money on weapons as compared to the social sector. It is because of this imbalance of
expenditure that Pakistan is being rapidly pushed backwards in terms of education. Unesco’s
Education for All Global Monitoring Report 2011 says that Pakistan spends seven times more on
arms than on primary education. It is a sad reflection on our country that no action has been taken to
rehabilitate the schools which have been destroyed by the militants.

Social evils like unemployment are increasing day by day because of the poor education system. In
order to make headway and compete with other countries, Pakistan should pay attention to
education by spending more money on it instead of on weapons.

SOCIAL PROTECTION

Budget estimates for 2011-12 are given below in table:

SOCIAL PROTECTION

70
 2010-2011 2011-2012 2011-12
Social Protection %

Administration 916 3418.4126 273.189

Others 548 1680.6856 206.694

Total 1,464 5099.0982 248.299

Social protection emerged as a central political and policy concern in 2008 in Pakistan. New
federal and provincial governments elected that year responded to this concern through the
adoption of large-scale cash transfer program to the poor. The fiscal allocation for cash transfer
program increased nearly six-fold in the financial year 2008/09 despite, or perhaps because of
the fact that a much-anticipated economic downturn had begun. The Benazir Income Support
Program (BISP), aimed primarily at poor women, became a centerpiece social intervention of the
federal government, while the Punjab provincial government, led by a party that sat on the
opposition benches at federal level, initiated its own cash transfer scheme, known as the Food
Support Program (FSP). The federal government’s Benazir Income Support Program (BISP) was
protected by law, and became the first targeted cash transfer program to reach up to 7 per cent of
all households.

After decades of neglect, social protection emerged as a major concern for political stakeholders
and policymakers in Pakistan. Pakistan, which had among the lowest fiscal allocations for social
protection programs in the region, trebled these allocations, in real terms, in 2008. Increases
continued in the next year despite, or perhaps due to, economic slowdown and the initiation of a
stabilization program with the IMF. A range of factors, most of them related to political change,
were behind this paradigm shift.

Last some years are showing a great spending in this regard which is satisfactory. The cost of
such benefit package has to be made affordable and that requires political will followed by
rationalization of current spending programs, reallocations of domestic resources and donor aid
as well as policies and measures.

71
 Chapter 7

PUBLIC SECTOR DEVELOPMENT PROGRAMS

72
In a country like ours, it is not easy to try and convince the armed forces to reduce defense
spending, or to place a greater tax burden on powerful political lobbies like the agriculturalists.
Such attempts are not easy to take as they would result in high resistance and counter-arguments

It is unfortunate that when there remains no area for cutting spending in current expenditure
portion and resources show a deficiency, governments like us are compelled to use funds
allocated for development purpose halting many public sector development programs for
national progress.

This cut in development allocations occurs despite the fact that there are several other routes
available for governments of countries like Pakistan to demonstrate economic caution.
Rationalizing the amount of money allocated to different forms of expenditure, or else trying to
generate more resources through progressive taxation of previously evasive revenue earners,
remain valid options in this regard. But it is not easy task, to try and convince the armed forces to
reduce defense spending, or to place a greater tax burden on powerful political lobbies like the
agriculturalists. And the problem remains there.

Instead, it is much easier to reduce plans to undertake future development schemes which will
only affect the unfortunate masses, which are struggling for basic survival and even don’t
understand the implications of cutting development spending. However, the long-term impact of
such apparently easier routes to lessen expenditures on major stated goals like trying to achieve
universal education and a healthy and productive workforce remain considerable. This is because
no country can hope to progress without adequately investing in its people, including those who
are too disempowered to make demands for their basic rights.

73
During the last whole decade, it has been noticed that our policymakers had continued to
conveniently cut the development spending whenever faced by economic disparity. That’s why
economists also termed the last decade as ‘the lost decade for Pakistan’. Although the past few
years saw a visible increase in development allocations due to economic growth, recent events
have again led Pakistan’s economy into terrible situation. It was, therefore, not surprising to see
the recent federal government move to significantly cut the Public Sector Development
Programme (PSDP), the only option considered by the government.

Frequent other reasons to cut development spending observed are:

• Overreliance on ‘Friends of Democratic Pakistan’ aid commitments in making the

national budget, including the PSDP he release of aid so far is insufficient to maintain the PSDP
at its original size.

• The additional huge amount being spent on the war on terror.

• The subsidy being provided to lessen the electricity crisis.

• The federal government decision to transfer more financial resources under the NFC
Award to provinces, therefore there is no need for federally funded development projects
anymore.

The government claims that it is all set to downsize development projects in view of the need to
reduce the development budget, and even initiatives undertaken by the prime minister in the
shape of the Multan Development Package, for instance, will not be secured from scrutiny. But
some exceptions are kept here as politically motivated projects may be reconsidered, projects of
a strategic nature, such as dam construction, and those meant to provide basic facilities to the
poor must not be disadvantaged. Also, projects which require no additional funding, as they are
using grant money, should at least be approved and allowed to continue. Projects nearing
completion should also be fully protected. But all this is easier said than done. One wonders if
development projects will actually be rationalized in a transparent and effective manner in

74
reality. It seems probable that many desperately needed programmes may thus be abandoned,
including the special development packages initiated to ensure regionally balanced growth in
Quetta, Southern Punjab, Dera Bugti, Kohlu, etc.

This overall situation has only led to increasing disparities across the nation. The poverty rate has
jumped up significantly during the past some years. More than 64 million people, out of a 160
million population, were living below the poverty line in 2008, as against 35.5 million people in
2005, according to the Planning Commission. But increasing poverty is just one reflection of
overall economic fall, which compelled Pakistan to seek loans of billions from IMF. Moreover
Pakistan is also struggling with a 30 year high inflation rate and fast-depleting foreign exchange
reserves. Fears of an projected reduction in public spending when our policy makers opted for
the IMF loan have now proven justified.

But there is a worse problem with Pakistan in meeting its financial obligations. Critics continue
to question whether the IMF terms and payback conditions make it a desirable source of support.
The government has so far failed to secure adequate aid as compensation for fighting terrorists’
activities. So taking on more loans from international financial institutions may not be the best
solution.

75
 PUBLIC SECTOR DEVELOPMENT PROGRAMME (PSDP)

2011-12

According to past 10 years analysis of PSDP, the salient features of PSDP allocations for 2011-
12 are projected as follows:

 The PSDP will be raised to Rs 1103.45 billion in the budget for 2011-12 showing an
increase of 66.4% as against the 2010-11 at Rs 663 billion.
 The Corporations' PSDP 2011-12 will be placed at Rs 60 billion indicating an increase of
5.3% over 2010-11.
 The share of Federal Ministries/Divisions in 2011-12 would be Rs 206 billion which was
Rs 168 billion in 2010-11 showing an increase of 23%.
 Federal PSDP for the year 2011-12 would be kept at Rs 244 billion.
 Special Programme would be allocated a sum of Rs 32.3 billion in PSDP 2011-12.
 Earthquake Rehabilitation and Reconstruction Authority (ERRA) would be allocated Rs
8.3 billion for budget estimates 2011-12.
 An amount of Rs 34 billion would be provided in the budget 2011-12 for the
development of Special Areas i.e AJ&K, Gilgit-Baltistan and FATA which is higher by
31% as compared with 2010-11.
 The provincial programme for 2011-12 is estimated at Rs 521.4 billion as against Rs 373
billion in 2010-11.

76
CHAPTER - 7 PUBLIC SECTOR DEVELOPMENT
 
PROGRAMME(PSDP)  

77
    
TABLE - 24 SIZE OF PSDP
2010- 2011-
11 2012
Classification
167,57 251.7412
8 589,441 8
(i) Federal Ministries/Divisions
3,619 8,063 122.785
1 Cabinet Division
15,228 21,326 40.04401
2 Pakistan Atomic Energy Commission
247 394.69 59.79359
3 Pakistan Nuclear Regulatory Authority
474 693.15 46.2351
4 Commerce Division
145 449.41 209.9385
5 Communications Division
519 765.64 47.52148
6 Ministry of Ports & Shipping
354 421.05 18.94118
7 Culture Division
230 222.89 -3.093002
8 Sports Division
75 185.01 146.6811
9 Youth Affairs Division
125 412.69 230.1503
10 Tourism Division
3,887 6,912 77.83052
11 Defence Division
1,230 1,728 40.46589
12 Defence Production Division
15 27.08 80.55556
13 Economic Affairs Division
5,071 6,009 18.49255
14 Education Division
15,763 17,907 13.60222
15 Higher Education Commission
1,000 2,014 101.3698
16 Environment Division
114 280.01 145.6193
17 Establishment Division
82 101.07 23.25318
18 Local Govt. & Rural Dev. Division
14,566 54,491 274.0945
19 Finance Division
1,235 1,054 -14.66555
20 Revenue Division

78
 10,874 7,998 -26.44558
21 Food & Agriculture Division
886 2167.40 144.6275
22 Livestock & Dairy Development Division
141 110.10 -21.91571
23 Foreign Affairs Division
16,945 213,746 1161.411
24 Health Division
3,220 11,800 266.4453
25 Industries and Production Division
508 1514.54 198.1373
26 Information & Broadcasting Division
718 606.21 -15.5694
27 Information Tech. & Telecom Division
5,654 8,529 50.84764
28 Interior Division
66 198.48 200.7241
29 Labour Manpower & OP Division
1,000 3,956 295.6447
30 Law Justice and Human Rights Division
550 1202.13 118.5688
31 Narcotics Control Division
   
32 Overseas Pakistani Division
   
33 National Reconstruction Bureau
623 58377.33 9270.358
34 Petroleum & Natural Resources Division
9,438 53,912 471.2215
35 Planning and Development Division
4,116 4,615 12.1273
36 Population Welfare Division
81 32.805 -59.5
37 Postal Services Division
13,630 16,651 22.16647
38 Railways Division
165 125.73 -23.7987
39 Textile Industry Division
1,646 2,701 64.08592
40 Science & Technological Research Division
82 111.65 36.16127
41 Statistics Division
1,000 837 -16.31532
42 Special Initiative Division
28,424 57,164 101.1127
43 Water & Power Division
153 126.18 -17.52653
44 Women Development Division
108 200.05 85.23262
45 Social Welfare & Special Education

79
 3,576 19,303 439.8061
46 Housing & Works Division
56,671 63,076 5.275998
(ii) Corporations
12,030 12,786 6.28655
1 WAPDA (Power)
44,641 50,290 12.65511
2 National Highway Authority
   
3 Village Electrification
30,000 32,292 7.64
(iii) Special Programme
   
1 Khushal Pakistan Programme-I
   
2 Khushal Pakistan Programme-II
5,000 6,250 25
3 People's Works Programme-I
25,000 26,042 4.166667
4 People's Works Programme-II
   
5 Khushal Pakistan Fund
   
6 Income Support Fund
   
7 Tameer e Watan
   
8 Tameer e Sindh
   
9 Afghan Refugees
   
10 Drought Relief Programme
   
11 Devolution Programme
   
12 Special Programme
   
13 Provision for less Develop Areas
   
14 DERA
25,751 33,731 30.98909
(iv) Special Area
10,529 13,099 24.40968
1 Azad Kashmir
6,579 8,480 28.901
2 Northern Areas
8,643 12,152 40.59614
3 FATA
A Federal Programme( i to iv) 280,00 718,540 156.6214

80
 0 3

10,000 8,251 -17.48917

B ERRA
373,00
0 521,398 39.78487
C Provincial Programme
663,00 1,248,18
0 9 88.2638
Total PSDP (A+B +C)

Federal Ministries/ Divisions:

The federal ministries/divisions are assigned with the responsibility of preparing programmes
and projects in their fields. These ministries assist the cabinet Prime Minister in managing the
government of Pakistan. Ministries prepare plans and then submit to planning commission which
is coordinating all development programs in the country. There are currently 46 divisions in it
like Cabinet, Commerce, Communication, Culture, Youth Affairs, Defence, Education, Finance,
Food and Agriculture, Health, Railway and other.

 Cabinet division is showing a significant increase. It should control its expenditures. Cut
of 50% should be implemented immediately. Resources can be saved by curtailing non-
development expenditures, and maximum resources can be made available for
development projects. Government should ban unnecessary expenditures except in
emergency cases where supplementary grant will be issued, while the ban on purchase of
luxury items should be continued. Seriousness should begin from the highest level and
simple living styles should be adopted.
 Financial constraints in the country have badly affected the projects of Pakistan Atomic
Eenergy Commission (PAEC) related to nuclear power in past some years. Pre-project
activities for the second nuclear power plant in Karachi and creation of an entity to
manufacture fuel for nuclear power plants also got affected due to non-availability of
funds. Exploration and drilling activities for Uranium were affected due to delay and
shortage of funds besides the law and order situation. Government should release the

81
 allocated budgets on time so that nuclear applications and developments in Pakistan can
be continued easily. An increase of 20% is necessary for proper working of this
commission.
 Generally government allocated budgets to different divisions but after this, government
fails to release development funds allocated in budget. As in 2009-10, Budgetary
allocations for the Public Sector Development Programme (PSDP) constituted over-
ambitious targets and the government later found it extremely difficult to meet a mere
three-and-a-half months after the budget was announced.
 Pakistan has to survive in this global world and for this; commerce division has to
strongly contribute in the national economy through trade liberalization and facilitation.
Its budget should be increased to improve the effectiveness of the commercial officers
program to promote and facilitate trade, develop an electronic trade portal as a valuable
online tool for the government, Pakistani exporters and international buyers to access real
time information that will help in making well-positioned in the global market and brings
more benefits than costs.its budget should be increased 2% more.
 Communication Division is receiving heavy funds. By analyzing it according to last 10
years allocations, it is showing quite uneven and feeble behavior. It should be decreased
as other important divisions need attention as compared to it. Its budget should be
decreased up to 40%.
 Pakistan Defense Budget is as much important as the remaining budget since our
Defense budget make up a huge part of our national budget. In recent past years it has
been significantly increased because of the increasing cost of War on Terror. It is worth
keeping in mind that Pakistan Military Budget translates into an a dollar amount of
approx $5 billion while when compared to our arch rival India, their annual military
budget for 2009-10 is approximately $32 billion. Indian Defense budget is around 2% of
the GDP while Pakistan’s military budget is approx 3.5% of our GDP.
“Security is our topmost concern,” the newly-inducted Finance Minister, Abdul Hafeez
Sheikh, announced in his budget speech, saying: “We are facing a situation in which our

82
 armed forces, paramilitary forces and security forces are laying down their lives … They
should know from this House that we all stand by them.”
As this division has huge responsibilities and facing lot of challenges, allocating huge
budget seems appropriate in this regard.

 The main responsibility of Culture Division relates to the promotion of education in arts
and culture including all matters pertaining to the privately sponsored dancing and
cultural troupes going abroad on commercial basis; development of arts council,
institutions and galleries; financial assistance to arts organizations, preservation and
conservation of national museums and historical monuments declared to be of national
importance; cultural pacts and protocols with other countries and their implementation;
development and control of film industry; establishment of cultural centers. Due to
financial constraints, this division has been overlooked since many years and it needs
special attention. To promote cultural considerations in our country, which is badly
affected, an increase of 10% is recommended.
 The Ministry of Sports was established as an independent Ministry in April, 2006. It has
the primary responsibility of promotion and development of sports in the country
comparable to standards prevailing internationally. Main activities in this respect are to
organize sporting events at national level and participation of Pakistani sportspersons in
international competitions/tournaments and engage in exchange of sportspersons with
foreign countries. The Ministry is responsible for the administrative control of the
Pakistan Sports Board, Pakistan Cricket Board and Pakistan Sports Trust.
 Tourism in Pakistan is not a large scale sector, and it plays a moderate role in
development of the country. As the situation of War and Terrorism prevailed in our
country since last some years, tourism has been totally discouraged. To encourage this
sector, a peaceful environment is mandatory. Allocating a large amount of budget is just
not enough.

83
 Shah Alam Khan, Economic Analyst of Ministry of Culture, Sports and Tourism
(Sports and Tourism Division) wrote in his article that Tourism has become one of the
foremost economic activities in the world. International tourism is often encouraged
because, besides other benefits, it generates foreign exchange. Countries must
realize that tourism affects local communities and is not necessarily desirable or
feasible for every place or each community, mainly because ecology and the
economy are becoming ever more interwoven, locally, regionally, nationally and
internationally. Countries must make sure that tourism development that takes
place is sustainable in the long-terms. If looked at globally, sustainable models of
tourism development require a global ethic which encourages the participation of
individual tourists, groups and communities, without whom sustainable tourism
growth will be next to impossible.
He presented three main principles of sustainable development that must be used as
guidelines while planning tourism development:
 Development must be ecologically sustainable and compatible with
the maintenance of essential ecological processes, biological diversity
and biological resources.
 Development must be socially and culturally sustainable and must
increase people's control over their lives, be compatible with the
cultural values of people affected by it, and maintain and strengthen
community identity.
 Development must be economically sustainable and efficient and
resources must be managed so that they can support future
generations.
http://www.unescap.org/ttdw/Publications/TPTS_pubs/pub_1748/pub
_1748_TP-D.pdf

 Ministry of Youth Affairs is one of the Key Ministries of the Federal Government. The
Ministry is currently executing National Youth Internship Program which provides

84
 temporary job opportunities to 30,000 Youth annually. Every Internee is provided
Rs10,000/- as a salary per month. To promote volunteerism in the country National
Volunteer Movement (NVM) is also working as attached organization with Ministry of
Youth Affairs.
In Pakistan, Youth is defined as the population in the age group of 15 to 29 Years. The
period of life which youth represents is most productive and useful by virtue of the
nascent energies they are endowed with by nature. The young people aspire for full
participation in the life of a society. If appropriate opportunities are made available to put
their natural endowment to creative, productive and useful channels, Pakistani Youth is
indeed capable of working miracles. In Pakistan, the youth population is at present more
than forty million, which is about one forth of our total population. Its budget should be
increased 20% more.
 Economic Affairs Division is responsible for assessment of requirements, programming
and negotiations of external economic assistance related to the Government of Pakistan
and its constituent units from foreign Governments and multilateral agencies. The issues
regarding external debt management and matters relating to technical assistance to
foreign countries, credit to friendly countries on lending / re-lending of foreign loans and
monitoring of aid utilization are being handled by this division.
 There continue to exist serious problems in terms of ensuring timely release and
utilization of Education budget. The low utilization of development budget at the
disposal of Education Division is attributed to a variety of factors including the late
releases by the Ministry of Finance, delays in site selection and acquiring land, inter-
departmental disputes, non-availability of technical staff, failures in appointing full-time
project directors, delayed consultant reports, late issuance of work orders and late
submission of reports or requests for release of funds by the related implementing
organizations. It is a very disturbing fact that the Education Division has been unable to
get these problems fixed over the past several years. Moreover its budget should be
increased equivalent to developed countries to improve the situation.

85
 The Education Division must improve its performance; and inform the stakeholders after
each quarter about the progress on development projects. It must also consider monthly
briefings for the media in order to explain the problems being faced and achievements
being made. It is demanded that the Education Division must take immediate steps to
improve its monitoring system and fix problems that result in extremely low utilization of
funds. It also needs to reassess its priorities and ensure that budgetary allocations are
efficiently utilized for promoting education for all. Most importantly, the Division must
proactively share all the related information about the development projects as well as
utilization of PSDP after each quarterly review. Maximum transparency in this context
can help in better monitoring, greater accountability, timely rectification of related
problems and improved performance of the Education Division. It would also improve
public trust and confidence in the Division, which is currently lacking for a variety of
reasons.
http://www.interface.edu.pk/students/Sep-07/Education-budget-Pakistan.asp

 The government agency that finances and oversees Pakistan's universities is facing a huge
budget shortfall, potentially hobbling the country's Higher-Education system, according
to news reports.
The agency, the Higher Education Commission, is on the verge of bankruptcy, the
commission's chairman Javaid Laghari told The News, a Pakistani newspaper. The News
said the commission had not received "a single penny" of the $183-million that the
government allocated to it for 2010-11, and that the money may be transferred to pay for
relief efforts in flood-damaged areas of Karachi. The lack of funds will hurt universities
that the agency provides financial support to for construction projects, student
scholarships, and other programs. The universities face a default of around $58-million,
which they have to pay to the contractors but have no money with them.

He further commented that Every country, even Saudi Arabia, is shifting from resource-
based economy to knowledge-based economy, but in our country the situation is

86
altogether different. It would be a great national loss as we could spend $175-million
merely on the construction of roads but could not spend the same amount on education.

In addition to the budget despairs, the Higher Education Commission is involved in a

recent political embarrassment. It is verifying the university degrees of the nation's 736
parliament members and 25,000 university faculty members and administrators as part of
a nationwide effort to weed out fraudulent degree-holders.
www.defence.pk/.../69184-pakistans-higher-education-commission-faces-dire-
budget-shortfall.html

Government freezes the funds of HEC:

After the international donors who put pledged funding for Higher Education
Commission on hold on pretext of its devolution, the government has also frozen both
development and non-development allocations of the HEC for the ongoing financial year.
Sources told The Nation that about Rs 9 billion of recurring budget and Rs 2.6 billion
allocations for development projects of universities have been put on hold by the
Ministry of Finance till the status of the Commission is cleared.
It has been learnt that Finance Department of the Commission informed the universities
on Friday about the decision to make them prepared for the expected delays in the release
of salaries if the Finance Ministry does not approve the file which has been withheld
raising objections that the matter of devolution is in process thus the funds cannot be
released till the situation gets clear.
The allocations for development projects of the provincial universities have also been
stopped making observations that future of HEC is uncertain and unless it gets clear that
the universities would work under the provincials governments or federal department the
funds cannot be released.

87
 However, the delays in release of funds in terms of non-development budget would cause
difficulties for 71 public sector universities both provincial and federal in payment of
salaries to teaching and non-teaching staff.
For the current financial year 2010-11, the government had allocated Rs 15.8 billion as
development budget, which was reduced to Rs 14.7 billion later on, and Rs 29 billion
non-development budget for the public sector universities across the country. Out of
which the amount for the fourth quarter has been blocked for an indefinite period.
www.nation.com.pk/pakistan.../Govt-freezes-HEC-allocations

The students of different universities staged protested against transfer of the HEC to the
provinces. They chanted slogans against the federal government and said that the
decision would a conspiracy against the poor students who wanted to get higher
education. They demanded that the HEC dissolution should be delayed to enable the
provinces to raise the level of education to the international standards.
http://www.dunyanews.tv/index.php?key=Q2F0SUQ9MiNOaWQ9MjM2NzA=

After viewing all above cited tragic problems and adverse situations faced by HEC, it is
recommended that government should not transfer HEC to provinces. It should patronize
HEC by itself and allocate fair allocations to this division. Allocated budgets should also
be released on time.
 Environmental Division is the focal point for National Policy, plans and programs
regarding environmental planning, pollution and ecology, including physical planning
and human settlements, urban water supply sewerage and drainage. The Division also
deals with other countries and international organizations in the fields of Environment,
housing, physical planning and Human Settlements.

In an article of Endangering Pakistan’s Environment published in Dawn, the following

situation is revealed:

88
The federal budget 2010-2011 announced a drastic cut in the budget allocation for the
Environment Division. As compared to last year's allocation of Rs 2.96 billion for
projects related to the protection of the environment, this year it has been trimmed down
to Rs 1 billion - a 52 per cent decrease.

Pakistan is on the brink of an environmental disaster with rising temperatures each year
that threaten the country's natural resources. In the Economic Survey of Pakistan 2009-
10, released just a before a day before the Federal Budget was presented in the
parliament, it clearly stated that due to global climate change and the adverse effects it
has on Pakistan, a lot more needs to be done. It emphatically pointed out that the negative
impact of climate change is proportionally linked to levels of poverty in Pakistan.
According to the report:

"Poverty is the main impediment in dealing with environment related problems. There is
an increasing demand on the already depleting natural resource base of the country. Since
poor are directly dependent on livelihoods ... poverty combined with a rapidly increasing
population and growing urbanization is leading to [an] intense pressure on the
environment."

Pakistan was ranked twenty-nine by the Climate Change Vulnerability Index (CCVI) as
compared to India's rank of fifty-six. The CCVI uses fifty 'smart indicators' that are
divided under sub-heads, such as Biodiversity, Water, Desertification, Agriculture and
Fisheries, Climate Change and Human Health Aspects, that help understand each
country's vulnerability to climate change and its effects. The lower the number is on the
index, the higher risk the country faces, which essentially means that Pakistan has been
declared a high risk according to the index.

Further, the survey report added that “during the last century, average annual temperature
over Pakistan increased by 0.6 °C, in agreement with the global trend, with the

89
temperature increase over northern Pakistan being higher than over southern Pakistan
(0.8 °C versus 0.5 °C)."

It is a threatening sign indeed. The report goes on to state that:

"If the situation goes continues it is projected that climate change will increase the
variability of monsoon rains and enhance the frequency and severity of extreme events
like floods and droughts. It is particularly so for Pakistan because climate change is
posing a direct threat to its water security, food security and energy security ... that the
average temperature over Pakistan will increase in the range 1.3 - 1.5 °C by 2020s, 2.5 -
2.8 °C by 2050s, and 3.9 - 4.4 °C by 2080s, corresponding to an increase in average
global surface temperature by 2.8 - 3.4 °C by the turn of the twenty-first century.”

The weather in Pakistan is normally mild in the month of April, but this year some parts
of the country - especially the southern region - experienced extreme temperatures of
over 50 °C. "Summer has come early this year, deviating from the pattern of the past few
years," says a meteorologist from the Meteorologicalrological Department, Karachi.

But there is some good news for Pakistan. Although the emission of greenhouse gases
(mainly resulting from the use of fossil fuel) has become a worldwide concern, Pakistan
accounts for only about 0.8% of the total global greenhouse gas emissions which puts it
at one hundred and thirty-fifth among the world ranking of countries on the basis of their
per capita emissions. But this still doesn't mean that we won't be affected by climate
change.

Responding to a question regarding the drastic decrease in the budget environment-

related project, a high rank official from the Federal Ministry of Environment stated that,
“It’s not good. We won't have enough in the budget to protect the environment and since
climate change is so rapid, we will not be equipped to meet the challenges in the future."

90
 “Due to the serious threats to our environment and natural resources it is time to invest
more in its protection," said Mahmood Akhtar Cheema, head of International Union for
the Conservation of NatureIUCN, Islamabad. When asked about the cut in the federal
budget, he stated: "The government knows about the state of environment in the country,
we hope they take the current situation and problems into consideration."
http://www.pakistantalk.com/forums/science-technology/7075-endangering-
pakistans-environment.html

On the basis of all this discussion it is recommended that Government should not cut its
development expenditures on this head. An increase of 25% is recommended for this
division.
 Ministry of Local Government and Rural Development was established on 2
February, 1976 with the objective to promote Local Government institutions and carry
out integrated rural development, in coordination with the Provincial Governments. On19
November, 1996, the Ministry was merged with Ministry of Environment and Urban
Affairs. On 22 November 2002, it was revived as a separate Ministry and became
functional on 17th May 2003.
According to a PhD thesis written by Khan, Shadiullah (2006) of Gomal University, D.I.
Khan, on Local Government And Participatory Rural Development The Case Study,
following views are discussed in detail: 

The government is almost the sole source of services in the rural sector of developing
countries. Being closest to the people and central to the participatory development, local
government in these countries has been assigned a strong role to play in rural
development. In Pakistan, the role and participation of councils in developing and
improving the Pakistani villages is appraisable. A chronological analysis of the history of
the local government in Pakistan reveals that democratic decentralized institutions at
village level, favoring participation in development could not be established despite

91
frequent reforms by the military rulers. Similarly, the local government participation in
development programs of the federal and provincial government is also minimal.
Mechanisms to encourage more active involvement and participation of the local
governments are severely restricted. However, both villagers and councilors are
nevertheless more inclined to favor people involvement in development activities which
is encouraging for improved participation in future.

Due to a variety of internal limitations and externally imposed obstacles, the

development initiatives of local government can make only limited progress. Usually,
their effectiveness varies directly with the financial and administrative capabilities of
local officials and with the degree of political support received from the central and
provincial governments. The thesis concludes by underlining the potential barriers - poor
financial base, a dependence on provincial/central governments for resources, lack of
motivation, democratic deficit, lack of people participation and political interference -
which have abated the development capacity of local government. There is a need to
overcome these problems before it can act as a vehicle for rural development.

On responsiveness dimension local institutions are perceived at the highest position

followed by MPAs and MNAs, It indicates the relevance of local government system to
the local problems. It seems that despite the limited engagement of local government
system in development endeavors, its weak institutional standing, lack of continuity,
frequent interruptions and excessive dependence on headquarters for financial support
and conceptual guidance, the potentials of local councils system have not been totally
eroded.

It is suggested that in order for local government to be an effective instrument of change,

it must be integrated with other economic and fiscal decentralization and backed up by
consistent political will (state commitment) and active society (people participation). The

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 institutional framework must have an endogenous ability to serve greatly heterogeneous
village demands.
http://eprints.hec.gov.pk/1011/

 The Ministry of Food and Agriculture is mainly responsible for policy formulation,
economic coordination and planning in respect of food grain and agriculture. It also
includes procurement of food grains, fertilizer, import price stabilization of agriculture
produce, international liaison, economic studies for framing agricultural policies.

http://www.minfa.gov.pk/

The progressive liberalization of world trade has created opportunities for Pakistan to
become integrated into the global trading system and to exploit its national and regional
comparative advantages. Evidence suggests that Pakistan has a potential comparative
advantage over developed countries in the production of many agricultural products, such
as cotton, rice, fruits, flowers etc. However, the ability of the country to maintain or
expand its world market share depends on its ability to meet the demands of the world
trading system, not only in terms of competitive prices but also quality of exportable
products and their safety standards. Budget allocated to this division in 2010-11 was
9.3% less than the previous budget. Food and agriculture both need severe attention in
our country. So its budget should be increased up to 5%. Funds should be released on
time and they should be used properly and efficiently.

 According to a Development Project on Milk Collection Processing and Dairy

Production and Development Programme of Planning Commission, Government of
Pakistan, following facts were established about Livestock and Dairy Development:

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Livestock in Pakistan is very important in the national economy and crucial for the rural
livelihood. It provides quality foods like milk, meat and eggs and its value added
products like leather garments and hand-knitted carpets are significant foreign exchange
earners. In spite of rapid farm mechanization, livestock are still a significant source of
power for farm operations. The farm yard manure is an important source of cooking fuel
and a major source of fertilizer for crop production and maintaining oil fertility.
Moreover, in our mixed farming system, livestock is now the major source of income for
the rural household. It is the major source of rural employment with deep involvement of
women in livestock management. Pakistan produces 29.47 million tons of milk annually
that makes this country the fifth biggest milk producing country in the world.

About 60% of the population of buffaloes and 55.5% of population of cattle in Pakistan
are owned by rural small farmers with less than six animals per family. These farmers
produce milk at minimal cost to meet the milk demand of their families. This subsistence
system makes heavy demands on family labour. The dairy animals maintained under this
system are generally under-fed as they mainly depend on grazing to meet their feed
requirements. Little or no attention is paid by these farmers to protect their animals from
prevalent diseases and disorders. Under this low-input production system, the milk yield
per animal is very low. There is a need to provide proper veterinary cover, better
breeding facilities and improved feeds/fodder along with training to farmers for better
management and thus better milk yields of these animals. This would help these small
farmers to enter into milk marketing chain provided some support is also given in terms
of direct collection of milk from them, its cooling and transportation to nearby dairy
plants or other bulk buyers of milk.
http://lddb.org.pk/forms/Revised%20Final%20pc-1%20Dairy%202006.pdf

By keeping an eye towards the importance of Livestock and Dairy Development in our
country and problems faces by the small rural farmers, it is ascertained that Government

94
 should increase its budget on this division up to 3-5% and budget allocated should be
utilized properly and where it is needed.

 The Ministry of Health is responsible for matters concerning National Planning and
Coordination in the field of Health. International Liaison, legislation pertaining to the
drugs and medicines, administration of drugs Act 1976. Among major nursing, dental,
pharmaceutical, Para-medical and allied subject such as maintenance of educational
standard, education abroad, educational facilities for backward areas and for foreign
nationals except the nomination of candidates from the FATA for admission to Medical
Colleges. Ministry of Health consists of one division; Health Division.
202.83.164.27/.../04_SB8K8xLLM9MSSzPy8xBz9CP0os_hQN68AZ3dnIwML82BT
AyNXTz9jE0NfQwNfc_2CbEdFALW8D...

Dr Sania Nishtar, the founder president of a health think-tank, Heartfile, wrote in her
article, Pakistan Budget – Five Points under the Health Lens about budgetary allocations
to Health Division:

Had it been conventional to place the budget in the public domain to solicit inputs of the
civil society on the directions proposed therein, suggestions such as the one articulated in
this opinion could have been more timely in terms of possible inclusion in the planning
process. Given that this is not the scenario, the following five points are offered as policy
inputs in relation to budgetary allocations for health, on the premise that some of these
ideas will generate a discussion in the forthcoming parliamentary debates.

First, it is important to recognise that the health status of populations has a direct
correlation with the level of public spending on health. However, it is not just the

95
aggregate level of spending, but the percentage of GDP allocated for health adjusted for
inflation and population growth, and its translation into per-capita public expenditures
relative to private expenditures that gives a somewhat truer picture of the state’s
investments in health. Here, it is acknowledged that Pakistan’s aggregate level of
allocation for health has increased considerably over the last decade, with further
increases in this budget representing a positive trend. However, changes in health
allocations as a percentage of the GDP have remained unremarkable; over the last 10
years this has ranged from 0.67 percent to 0.8 percent. Although this year’s figure is not
in the public it will be within this range as opposed to the internationally recommended 4
percent of the GDP.

Currently, the public sector spends $4 per capita on health annually, as opposed to the
internationally recommended $34 per capita, the minimum required to provide essential
health services in developing countries. Clearly, this huge gap needs to be bridged.

Triangulation and analysis of health expenditure patterns across agencies in Pakistan

providing comprehensive health cover to employees and their dependants, demonstrate
that delivery of health appears plausible at an expenditure level of Rs2,700 (roughly $42)
per capita, annually in Pakistan. This is still significantly lower than what some other
developing countries spend on health. Assuming Rs2,700 as the benchmark per-capita
public-health expenditure for Pakistan, it is recommended that the government should
present a five-year plan to incrementally enhance allocations. Although it may not be
possible to reach the goal in five years, targeting the goal can set a precedence to enhance
allocations over and above the Fiscal Responsibility Act stipulation of doubling health
allocations over a ten-year period.

The second point is in relation to the current skew in favour of private sources of health
financing, as opposed to the desired public sources. Approximately 70 percent of
healthcare in the country is financed through out-of-pocket payments made to health

96
providers at the point of care. This is the most inefficient and inequitable way of
financing healthcare. Ideally, health should be funded through public sources, which
include revenues, social health insurance or other means of pooling, such as social
protection.

We cannot expect miracles to turn this equation around overnight; it is accepted that it is
only through long-term structural measures that the skew might even out if appropriate
policies are adopted and sustained overtime. Whether the present government can do that
is a separate debate and one that will be the focus of another opinion. Relative to the
present discussion, it would be appropriate to introduce certain short- to medium-term
innovative measures. These could include earmarking of a higher percentage of Zakat
and Bait-ul-Mal funds, over and above the current estimated 15 percent for health, ring
fencing these funds into a transparently governed health equity pool, and the creation of
the an efficient delivery instrument.

Another quick win could have been modification of the eligibility criteria under the
Employee’s Social Security Institute, to include a wider segment of the population, or
creating better linkages of health under current labour legislation, or simply expanding
the scope of cash transfers under Benazir Bhutto’s Income Support Programme to protect
the poor against catastrophic spending on health; the latter according to the Planning
Commission’s 2007 Social Protection Survey, are the commonest cause of economic
shocks to households in a poverty precipitating context. The creation of a financial tool to
make it implicitly binging on district governments to spend a certain percentage on health
is another low- lying fruit. Although these opportunities have been missed, there is still
time to explore them during the budgetary parliamentary sessions.

97
Thirdly, the budget does not appear to be concerned with utilisation and targeting issues.
The 20 percent lag in allocation and expenditure observed over the years in various health
agencies is telling, as is evidence related to the wide scope for patronage, abuse,
discretionary use of power and exploitability of procedures in case of targeting resources
to the poor. It has been estimated that the cumulative value of resources pilfered,
mistargeted and ineffectively handled are more than a staggering 50 percent of the total
health budget. In order to address this, certain invisible measures are needed.
Strengthening capacity to streamline national health accounts, leveraging technology to
minimise leakages from the system and measures to promote transparency through the
creation of electronic public expenditure tracking systems and payment inventories are
some measures, which can lead to major gains in the long term. Budgetary allocations in
these areas are not evident and it is strongly urged that some of these strategies should be
budgeted for.

Fourthly, the classical budgetary disparity evidenced in priorities for allocating resources
for preventive healthcare is obvious. According to the Federal Bureau of Statistics’
Pakistan Demographic Survey, it is documented that more than 50 percent of deaths are
due to non-communicable diseases (NCDs). However, as opposed to this, only 0.66
percent of the total healthcare budget has been allocated for the prevention of these
diseases. NCDs, a collective name given to the diseases of the heart, diabetes and some
lung conditions and cancer, incur significant costs in healthcare, undermine income-
generating capacities of the productive workforce and have the potential to perpetuate
acute poverty crises.

There is an expectation that a new government will engage the much-needed re-
engineering of public-health priorities; due attention must be paid to this.

Fifthly, and following on the same note, there was also an expectation that there would be
a move away from the output-driven approach as evidenced by new target setting in the

98
number of Lady Health Workers and recasting of old programmes to some strategic
restructuring interventions that could help the new government achieve its stated
commitment embodied within the creation of a national health services as articulated in
their manifesto. There are many imperatives for restructuring a health system that has
fundamental flaws and where governments attempt to finance and deliver services in an
environment where the private sector operates in a completely unregulated market. A
policy, legislative, regulatory and institutional overhaul in health has been long overdue.

The government could have signalled a commitment to overhauling the health system by
reorienting priorities for allocating resources and earmarking seed funding for innovative
pilots. The beginnings of that are not evident in the directions of the budget. Nonetheless,
let us give the new government benefit of the doubt. Perhaps time and situational
constraints precluded attention to this matter and an opportunity was inadvertently lost.
The parliamentary debate would be the next opportunity to weave in some strategic
measures, which can then be built upon further in their new health policy. If that
opportunity is not leveraged, they will not just miss the boat but also the chance to take
initial steps to consolidate the egalitarian premise of their manifesto and the opportunity
to be true to the reference to social justice in its preamble.

http://www.opfblog.com/2749/pakistan-budget-%E2%80%93-five-points-under-
the-health-lens/

Budget allocations of 2010-11 are showing a decline of 8 % which is not satisfactory. On

the basis of above recommendations, it is suggested that budget allocations to Health
Division should be increased up to 30% or at least equivalent to International Standard
developed for developing countries.

99
 A meeting organised by the National Assembly Standing Committee on Railways to
discuss affairs of the ever-sinking national organisation was informed that the
government had released only Rs2.1 billion till February 2011 so far against Rs25.1
billion allocated to it for the current financial year.

Mr Bilour, minister of Pakistan Railway said: “The PR is virtually dying because out of
its 500 locomotives, only 227 are in running condition. Despite repeated presentations
before the cabinet, the government is non-committal to bail the railways out.”

He said it was ironic that the government had funds to bail out the PIA, which was used
only by a fraction of Pakistanis, while the railways was a cheap mode of transportation.

The minister said the government had been promising for the past one year to release Rs5
billion for making old locomotives functional, but nothing had happened, and as a result
“we will have to close down more routes”.

He said the railways was losing business to road transporters because it was running only
four freight trains daily. If the problem of shortage of locomotives was overcome, it could
run 16 to 17 trains daily, he added.

The PR suspended passenger trains on seven routes last year. He said a Rs11.5 billion
PR-specific package was approved by the federal cabinet on Dec 30, but the government
had not released the amount. In addition, he said, a huge reduction had been made in the
railways’ share in the Public Sector Development Programme.

Railways Secretary Shahid Hussain Raja told the meeting that Rs13.6 billion was
allocated for the railways under the PSDP, but later the amount was reduced to Rs7.3

100
billion. “There are strong indications that we will not get even this amount by the end of
the financial year,” he added.

Finance Secretary Waqar Masood said the government wanted to make the railways a
commercially viable entity, but the current economic circumstances did not allow this.
“The government does not have enough funds to spare for the PR,” he said.
The committee suggested that the government write off or take the responsibility of entire
PR loans, which stood at over Rs40 billion.

Planning and Development Division secretary Sohail Ahmad said the government had
imposed an across-the-board cut in the PSDP allocations. Thus all government sector
entities have to manage their affairs within the limited funds. The committee
unanimously recommended immediate steps for addressing the financial crisis facing the
railways.

http://www.dawn.com/2011/02/16/govt-has-no-funds-for-railways-na-body-told.html

Analyzing the above all situation faced by railways it is recommended that Government
should take deep concern in this regard. Budgetary allocations to railways decreased by
2.6% in 2010-11 as compared to previous budget. An increase of approximate 20% is
demanded and all allocations should be released on time.

101
 CHAPTER - 8 "LOANS AND INVESTMENTS"    
TABLE - 25 "CURRENT LOANS"    
Classification 2010-11 2011-2012
1 Loans-WAPDA for Hub & Khanpur Dams 160 19051 11806.71
2 Loans to Govt. Servants 3,000 14,117 370.5568
3 Ways & Means Advances to AJ&K 6,796 7,743 13.93579
4 Loans to Friendly Countries 100 427 327.464
5 Loan to Employees of PNRA 4 4 0
6 Junagrah & Kathiawar Chief 1 1 -
7 Loan against the Liability of PODB   0
8 Loan to WAPDA ( LSFO - HSFO )   0
9 Loan to Printing Corporation of Pakistan   0
10 Others   0
11 Loan to PIAC for urgent requirement   0
12 Loan to UNHCR   0
13Qard E Hasan   0
14 Loan To CIRC & Micro Finance Bank   0
15 Loan PECO   0
16Loan To Employee Of PEAC   0
17WAPADA For ABD Loan   0
18LOAN TO SNGPL   0
19 HEC Hatttar Repayment   0
20 LOAN KESC   0
21LOAN TO GOVT OF SINDH   0
22 Larkana Sugar Mill   0
23 Loan TO CAA   0
24 SAC Loan TO Gov of Sindh/NWFP  
Others   0
Total: 10,061 41,343 310.9233
     
TABLE - 26 "DEVELOPMENT LOANS"    
Classification 2010-11 2011-2012
1. Cash Development Loans 52,842 57,655 9.10811
2. External Development Loans 45,119 46,732 3.57565
TOTAL 97,961 104,387 6.55975
     
     
TABLE - 27 "FEDERAL INVESTMENTS ON CURRENT ACCOUNT"    
Classification 2010-11 2011-2012
1 Share capital of ECO trade 2,100 445,633 21120.6

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2 Gateway foundation share subscription    
3 Karachi Shipyard & Engineering Works (KS&EW) 578 422 -26.9856
4 GOP Equity in PIA 3,677 7,124 93.75625
5 GOP Contribution to SAARC 1,165 1,296 11.26815
6 GOP Equity in USC    
7 Pak-Oman Investment Co. (POIC)    
8 GOP Contribution/share in Equity of Pak - Brunei Investment Co.    
-
9 Enhanced Capital of Islamic Development Bank(IDB) Jeddah 1,127 1,085 3.692158
10 Equity from GoP for Pak-Malaysia    
-
11 Equity from GoP for Pak China Inv. Co. 1,400 1,251 10.65559
12 Equity from GOP - Pak Iran Inv. Co.    
13 Equity of Pak-Bahrain Joint Inv. Co    
14 GoP Equity in Pak Steel Mills 232 445 91.79167
15 GOP Equity in Pakistan Textile City Ltd    
-
16 GOP Equity in Pakistan Dairy Dev. Co.Ltd 83 80 3.326118
17 GOP Equity investment NIP Karachi 291 291 0.016254
18 Contribution to Poverty Alleviation Fund    
19 Capital Stock of Islamic Corp.(ICIEC)    
20 Payment of Mark up on loans by PASDEC 50 50 0
21 5th General Capital Increase of ADB 517 522 0.976563
22 State Bank of Pakistan 3,200 3,200 0
23 SME Bank 2,500 2,500 0
24 Mortgage Refinance Company 1,200 1,200 0
25 GOP EQUITY In KESC    
26 Others 8 9 14.28571
27 Gop equity in PEPCO    
28 Capital increase of ADB    
30 Pakistan insurance corp    
31 GOP equity in WAPDA    
32 Investment in SSGC    
33 Subscription in MIGA    
34 GOP investment in WAPDA    
Total: 18,129 107,890 495.1238

After considering final projections from the data 1998 to 2010 we have on conclusion that our
economy is surrounded by an awful situation. It is an open secret that the public in Pakistan is

103
dissatisfied from the present condition. The jolt taking economy is surviving on two counts one
foreign remittance which overseas Pakistanis remit every year and second option is taking loans
from IMF. Government is continuously taking loans from external sources but not investing and
spending fairly which is causing alarming increase in debt ratio. Due to the increase in loans
from World Bank and IMF every single person is under debt of 60,000. The economy is in
shambles, and unable to meet the International Monetary Fund demands for its continued
support. Because of this circulation of money has increased resulting inflation and depreciation
of Pakistani currency. Slow economic growth coupled with lavish government spending is
pushing Pakistan deeper and deeper into debt-trap. Debt servicing has become the largest single
item of expenditure in the government.

On the other hand money taken from internal and external banks is not invested and spent in a
fair manner. Increase in debt burden without a corresponding expansion of the revenue base and
of exports has lead to a high rate of inflation and balance of payments difficulties. Control on
inflation is essential not only to protect the poor but also to spare the budget from rising debt
servicing that is caused by inflation.

The annual expenditure on administration of the President’s House and Prime Minister’s House
has continued to increase steadily despite the fact that the government proposed cuts in subsidies
and levied additional taxes in the budget. As far as the politicians are concerned, alleged
corruption charges against them make headlines but when it comes to corruption scandals in the
military, bureaucracy or the judiciary, they are either swept under the carpet or never come out in
public. Our bureaucracy is not just inept but it has cost the state billions of rupees due to its ad
hoc culture.

After examining whole situation we can recommend our government and budget maker to take
some serious steps and make some serious amendments and changes in loan and investment
section. Pakistan has huge investment potential in different sectors like energy, infrastructure and
agriculture if government induce foreign investors and also private investors to invest in it will
be first class for our economy because it will result in higher returns or revenues, for this

104
government has to make some severe actions against terrorism so that people from abroad and
within the country can invest without any fear.

Also there should be political stability in country. Unproductive expenditure like extra budget
on unnecessary departments, constitutional expenditure on high protocol, foreign tours should be
minimized or finished. The President House was allocated Rs.447 million for the year 2010-11
against the previous year’s expenditure of Rs.349 million a spike of about 15 percent. The
estimated expenditure at the Prime Minister’s Secretariat rose by 13.08 percent as a total of
Rs.484 million as compared to last year’s expenditure of Rs.438 million.. The ongoing financial
crunch and political compulsions strenuously demand the government to immediately cut the
cabinet to size. The government is spending so much money on its own luxuries, shamelessly
ignoring the flood victims who stand deprived of their homes. Careless spending on foreign trips,
lavish parties and functions at government expense needs to be stopped forthwith. Similarly,
import of expensive bullet proof vehicles and other expensive security equipment for the
protection of those at the helm of affairs cannot guarantee their security as much as a serious
effort to eradicate poverty, enhance literacy rate, reduce unemployment, and minimize frustration
and anger of the poor population against the conspicuous life style of the ruling elite.

All proceeds from the privatization of national assets should by law be mandated to be used only
for retirement of the expensive debt liability and not wasted on additional expenditure. If
privatization proceeds were used for this purpose in the last two decades, debt serving would
have declined significantly opening up fiscal space for larger development programs. If further
damage to the economy of the country is to be avoided, the debt servicing should not, be
“financed” by getting more debts. Allocation of resources and loans should be on most desirable
projects which bring about more revenue and employment level.

The people who pay taxes are a small percentage of the prosperous public. What is the
percentage of those who should be paying taxes compared to the small percentage of tax payers
hits the eyes. Erratic taxation at the expense of the poor is not a solution but part of the mega-
problem. Feudal or the big landlord does not pay income tax on his huge income, while most of
them are among the super rich. Their lavish expenditure reflects existence of huge untaxed and

105
stolen wealth. So the tax system should be made stern to increase revenue other than depending
on loans. Self reliance can be achieved only if the tax net is widened both in urban areas and
agricultural areas and all the rich and poor are brought into tax net uniformly by devising a
sustainable direct taxation system. The burden of taxes has been shifted from the rich to the poor
which needs rationale approach. The sole stress on indirect taxes has destroyed our economic
growth, besides widening income inequalities. If the tax net is widened it is possible we will not
need foreign loans for our budget support. Since government’s taxation policy is inelastic, there
is a requirement to either determine new basis for taxes or reduce expenditure. Our governments
have failed to bridge the gap between current expenditure and tax collection. We can never
overcome revenue deficit unless rulers drastically cut wasteful expenditure.

If government thinks about over all above recommendations sincerely and take some positive
and healthy steps it can make loan and investment segment of budget better. which will surely
bring improved economy, superior for both government and nation.

106