Pakistan Budget 2023-24: Analysis
As we know, Pakistan Budget 2023-24 has been presented by the Finance Minister Ishaq Dar. Normally, The federal government of Pakistan puts forth the annual budget before the National Assembly during the first or second week of June, as is customary. Then, each country’s provinces do the same in front of their Provincial Assemblies.
(Note: Before reading the Pakistan budget 2023-24, remember that the figures in the budget are expected calculations and are presented in advance for the fiscal year.)
WHAT IS BUDGET?
“A budget is an estimated monetary computation that outlines the planned expenditures of the government as well as the methods that will be used to finance those expenditures. The Annual Budget Statement is the financial plan that is meant to be implemented throughout a single fiscal year. In addition to that, it acts as a policy document.”
IS PAKISTAN GOING TO DEFAULT?
According to Pakistan Budget 2023-24, Pakistan is expected to face the highest-ever budget deficit in the next fiscal year, 2023-24. The country needs around $25 to 30 Billion to avoid default risk. For the fiscal year 2023-24 budgeted deficit is 6.54% of the GDP of Pakistan. But, actually, it would be 7.1 to 9%, which is alarming for the country.
IMPORTANT TERMS: (A Reader Should Know)
Fiscal Year: The government accounting period, From July 1 to June 30, Fiscal year 2023-24, ends June 30, 2024.
Current Account Deficit:
A deficit occurs when a nation sends more money abroad for goods and services than it receives. It is used to calculate short-term performance.
Budget Deficit and Budget Surplus:
The word “budget deficit” refers to a situation where the government’s planned expenditures for a fiscal year exceed its expected income. Pakistan has experienced a 7% GDP budget deficit in FY 2022-23 and will bear a 7 to 9% budget deficit in 2023-24. This is the highest budget deficit ever. On average, Pakistan was suffering a 4% budget deficit.
Conversely, “budget surplus” describes a situation where revenues exceed expenditures. Borrowings, domestic and international, support the government’s budget deficit; conversely, surplus funds are often put toward paying down existing debt.
Twin Deficit:
A Twin deficit occurs when an economy simultaneously has a budget and current account deficits.
Supplementary Budget:
It is an additional fund under a specific object that wasn’t initially planned for in the budget. The National Assembly prepares and approves the supplemental budget throughout the year of implementation.
Economic Indicators:
Gross Domestic Product (GDP):
It displays the whole worth of products and services generated over a fiscal year. The GDP of Pakistan is around $350 Billion (2021).
Gross National Income (GNI):
The amount of money a country’s citizens and companies earn in a fiscal year. It is used to gauge and chart a country’s wealth through time. The figure is the sum of the country’s gross domestic product (GDP) and foreign-source revenue.
GNI = GDP + Foreign Income
Growth Rate:
The change in GDP value from one time to the next (mostly a year) is measured as its growth rate. It is always written as a number. The growth rate of Pakistan was 6.5% of the GDP in 2021-22, whereas it has fallen to 0.29% in 2022-23.
Direct Tax:
A tax is imposed on a person’s or business’s earnings or assets. Income and property taxes are examples of direct taxes since these are levied directly on a person’s income and property.
Indirect Tax:
The tax is applied to purchases rather than to earnings. For example, we all pay sales tax on every product purchased and an amount deducted on recharge. Primarily it is included in the price of a product, whereas some businesses like restaurants add it manually to your bill.
Public Account Committee:
A group comprises the National Assembly or provincial assembly members in charge of reviewing and reporting on the information in the consolidated financial accounts created by the Pakistani Auditor General.
RECEIPTS AND EXPENDITURES OF THE FEDERAL GOVERNMENT:
A. FEDERAL RECEIPTS (Funds Collection)
1. Components of Federal Receipts
a) Federal Consolidated Fund
i. Tax Revenue Collected by CBR
· Direct Tax
Income Tax
Property Tax
· Indirect Tax
Customs Duties
Sales Tax
Federal Excise
ii. Tax Revenue Other Than CBR Collections
Contributions under Companies-Profits (Workers Participation) Act, 1968.
Foreign Travel Tax
Petroleum Development Levy
Surcharge on Natural Gas
Airport Tax
iii. Non-Tax Revenue
Income from Property and Enterprise
Receipts from Civil Administration and Other Functions
Miscellaneous Receipts
Agricultural receipts
Revenue from the explosives department
Receipts from the cabinet division
Revenues from lighthouses and lightships etc.
iv. Capital Receipts
· Internal Receipts
Recovery of Investment against state enterprises
Recoveries of Loans and Advances from provinces
Domestic Debt Receipts against Government Domestic Bonds
Floating Debt receipts against Prize Bonds
Treasury Bills, etc.
· External Receipts
Project aid loans and credits from bilateral and multilateral donors, friendly countries and specialized international agencies
Receipts from Sovereign/Euro / Sukuk Bonds
Grant assistance under Food Aid Convention, World Food Program (WFP), and other specific country programs.
b) Public Account:
The balances under Public Account are both receipts and disbursements.
Receipts represent inflows into various savings schemes launched by the government and deposits and reserves accounts maintained on behalf of the government.
Similarly, disbursements signify outflows from schemes, deposits and reserve accounts. Net balances are included in the Receipts portion of the budget.
c) Privatization Proceeds
· Privatization Commission Ordinance, 2000 provides that the net privatization proceeds received through the sale of enterprises owned by the federal government shall be transferred to the federal government. The ordinance further provides that the privatization proceeds transferred to the federal government shall be utilized by the federal government as follows:
10% shall be used for poverty alleviation programs
90% for the retirement of the federal government debt
d) Provincial Share in Revenue Receipts
· Under the Presidential Order of January 1, 2006, the percentage share of the provinces from a list of federal taxes2 has been fixed at 41.5% for the fiscal year 2006-07 with a 1%-1.25% increase per year with a maximum of 46.25% in the year 2010-11 and onwards. The remainder will represent the federal share of the receipts.
B. FEDERAL EXPENDITURE (Expenses)
1. Current Expenditure:
a) Current Expenditure on Revenue Account
i. General Public Services
ii. Defense Affairs and Services
iii. Public Order and Safety Affairs
iv. Economic Affairs
v. Environmental Protection
vi. Housing and Community Amenities
vii. Health
viii. Recreation, Culture and Religion
ix. Education Affairs and Services
x. Social Protection
b) Current expenditure on Capital Account
i. Development Expenditure
c) Development expenditure on Capital Account and Revenue Account:
· Development Expenditure on Revenue Account is the term to describe spending on planned and current development projects/schemes funded by revenues from routine government activities. The same is true for development expenditure on capital accounts, which comprises spending on projects supported by grants, loans, and other sources of money.
RECEIPTS AND EXPENDITURES FOR THE PROVINCE
The federal budget’s many components are similar to the provincial budget’s. Some receipt headings, like property tax and interest on loans to district governments and tehsil municipal administrations (TMAs), only apply to provincial budgeting. Similar to how most spending categories mirror those in the federal budget, there are only a few exceptions, such as defense-related expenses not included in the federal budget.
Government Transfers
Federal Transfers are transfers of a portion of resources divisible under the National Finance Award (NFC Award).
Real Estate Tax
On commercial, residential, and other properties, provincial governments levy property taxes, which are a significant source of revenue for the corresponding local governments.
Interest on Loans to TMAs and district administrations
These are loan interest payments and advances to the provinces’ separate district administrations.
PHASES OF BUDGET PREPARATION PROCESS:
There are six stages involved in the budget Cycle:
i. Setting the Budget Objectives and Priorities
ii. Preparation of desired Budget
iii. Budget Submission and Approval
iv. Implementation of Budget
v. Monitoring and Controlling
vi. Periodic Assessment
HOW THE BUDGET IS PREPARED:
1. Setting the Budget Objectives and Priorities: During the first phase of the budget cycle, budget priorities, objectives, strategies, and initiatives are typically defined by the National and Provincial Cabinet. The Ministry of Finance or Finance Department then facilitates the formulation of these by the departments and ministries.
2. Preparation of desired Budget: In this phase, spending departments prepare and submit budget estimates of their expenditures and revenues, which the Ministry of Finance or Finance Department then reviews and consolidates.
3. Budget Submission and Approval: The Annual Budget Statement must be submitted to the National/Provincial Assembly at this stage. This involves two steps: National/Provincial Assembly approval after debate/discussion in the Assemblies and Prime Minister/Chief Minister authentication. The ‘Schedule of Authorized Expenditure’ (SAE), which represents the authorized budget, is subsequently sent to the President or Governor for approval.
4. Implementation of Budget: This phase includes the transmission of the budgets by the Ministry of Finance/Finance Department to the spending ministries, administrative departments, and respective Accountant General office/Accountant General of Pakistan Revenue. The spending departments are helped by budget execution to carry out their planned operations and incur expenses within the permitted ranges.
6. Periodic Assessment: This includes regularly evaluating financial performance and accomplishing strategic goals by expenditure divisions. This also provides audit evaluations conducted by the Public Accounts Committee and the Office of the Auditor General. The expenditures of the ministries under their control may also be reviewed by standing committees of the provincial assemblies and the Parliament.
FEDERAL BUDGET 2023-24
GOVERNMENT PRIORITIES IN 2023-24:
Pakistan’s economy will recover in 2023-24.
The government to optimize tax and non-tax resource creation for public welfare and development.
Public Sector Development Program is raising Rs. 950 billion to boost the economy and jobs.
Sustainable and inclusive growth requires agricultural, IT, and industrial investments.
Reviving the private sector requires business-friendly policies.
The government will prioritize pro-poor policies, and the Benazir Income Support Programme budget has been increased to help people experiencing poverty.
Utility Stores will have enough budgets for subsidized food.
By cutting non-essential spending, government austerity will maintain economic discipline.
THE BUDGET STRATEGY:
The FY2023-24 budget addresses fiscal imbalance and inflationary concerns. Budgetary and debt management are underlying in FY 2023-24 budget. It guides economic recovery and government income and expenditure agendas. Additionally, The FY2023-24 budget emphasizes fiscal consolidation, external account strengthening, and balance of payment improvement. This budget prioritizes social security systems and targeted assistance for struggling people.
TARGETS OF FY 2023-24 BUDGET:
Overcoming economic competition and excessive inflation to achieve stable economic growth.
To maximize tax and non-tax resource creation, taxpayer facilitation, and tax netTargeted subsidies and subsidized food items for the poor
Addressing twin deficits and improving the country’s balance of payments
Introduce business-friendly policies
A GLANCE AT THE FEDERAL BUDGET 2023-24:
FEDERAL BUDGET DEFICIT AND DEFAULT RISK:
With reference to Pakistan Budget Statement 2023-24, the sum of Federal expenditures is Rs. 14,460 Billion, whereas the total receipts of the Federal Government are Rs. 6,887 Billion. The fiscal year 2023-24 budget deficit is Rs. 7,573 Billion, which equals Rs.7.57 Trillion or $26.5 Billion. The situation of the economy is deplorable. Pakistan is paying interest of Rs. 7,303 Billion or Rs. 7.3 Trillion on its borrowings, whereas the Defense Budget of the Country is 1,804 Billion rupees. Islamabad is spending four times more on debt interest than its defense.
LAST YEAR'S BUDGET’S COMPARISON WITH THE CURRENT BUDGET:
Expenditures of Government FY2023-24:
Function wise current expenditure can be seen to understand how much money is spent. Interest payments of Rs. 7.2 Trillion are included in General Public Service funds of Rs. 10.428 Trillion. The government allocated to Education and Health Rs. 97 Bn and 24 Bn, respectively. Around 50% of the Federal Government Budget is consumed in paying the interest on debts and borrowings. The remaining 50% is for defense, development, health, education, and environmental protection.
Supporting Documents:
You can see the following documents for further details.
- Pakistan Budget Statement 2023-24
- Budget in Brief
- Understanding the Budget Document
I am sure this blog will benefit the students of CSS, PMS and other one-paper exams. Aspirants should be aware of current economic and political affairs to attempt questions effectively in the exams. This blog has gone too long. I will write more blogs to cover salient features of budget 2023-24 and the latest economic survey of Pakistan.
Give your valuable feedback in the comment section to appreciate my efforts. May all your wishes come true.
Kind Regards,
CSS Mentor