Budget in Brief 2020-21

FEDERAL BUDGET 2020-21

BUDGET IN BRIEF

Government of Pakistan Finance Division Islamabad

PREFACE

Budget in Brief is a synopsis of the Federal Budget 2020-21, which is being published to provide concise information in simple manner for understanding of readers.

Before providing information about the next year budget, measures taken by the government on path to stabilization, adverse impacts of Covid 19 and government response have been highlighted. Furthermore the budget philosophy and approach have been briefly explained.

‘Budget at a Glance’ offers a quick overview of the federal budget 2020-21 while information on fiscal deficit and financing has also been tabulated. The Budget Estimates have been added along the comparison of budgetary position of fiscal year 2020-21 viz-a-viz outgoing fiscal year 2019-20.

This document offers a bird eye view on revenues and expenditures, budgeted for fiscal year 2020-21 as well as budget estimates for the fiscal year 2019-20. The details of subsidies, grants and transfers along with break-up of current / development / investments for ensuing fiscal year has also been given. Further, a detail of provincial share in Federal taxes has been given.

Detailed information is available in the relevant budget documents i.e Annual Budget Statement and Explanatory Memorandum on Federal Receipts.

After the Budget presentation in the National Assembly, budget books, including the Budget in Brief, are uploaded on the website of the Ministry of Finance: www.finance.gov.pk.

I hope that this document will be useful to all those who seek a simple understanding of Budget 2020-21.

Naveed Kamran Baloch Secretary to Government of Pakistan

Finance Division Islamabad, the 12th June, 2020

CONTENTS

Focus of Government of Pakistan - To Improve Fiscal Discipline

The Government took following steps to improve the Fiscal Discipline:

• a) Implementation of Public Finance Management Reforms and Cash Management System leading towards Treasury Single Account

• b) Austerity and restructuring of the Federal Government to lessen financial burden.

• c) No borrowing from SBP for budget financing

• d) No supplementary grants approved

• e) Maintain a Primary Surplus

• f) To facilitate PSDP spending bottlenecks in efficient release of funds were removed

• g) Existing stock of public guarantees was capped by the government

• h) Refunds of Rs 254 billion issued to the business community which are 125% more than Rs 113 billion issued last year. Additionally, Rs 35 billion have been provided for payment of DLTL claims

• i) Launching of flagship “Ehsaas” program to improve cash transfers to the poorest segment of society through better targeting

• j) Historic package of Rs 152 billion to the merged districts of Khyber Pakhtunkhawa to ensure their development

First 9 months of FY 2019-20 - On the Path to Stabilization

The policy decisions of the Government helped in stabilizing the economy and bringing in improvement in major economic indicators during the first 9 months of the FY 2019-20.

• a) Current Account deficit reduced by 73% from $ 10 billion to $ 3 billion

• b) Trade deficit decreased by 31% from $ 21 billion to $ 15 billion

• c) Fiscal deficit reduced from 5% to 3.8% of the GDP

• d) Primary surplus of 0.4% of the GDP achieved first time in last 10 years

• e) FBR revenue increased by 17% and the government was on track to achieve the revised target of Rs 4,800 billion

• f) Non tax revenue increased by 134 % against the annual target of Rs 1,161 billion

• g) Remittances increased to $ 17 billion.

• h) Foreign direct investment almost doubled from $ 0.9 billion to $ 2.15 billion

• i) Debt management improved by shifting 74% of domestic debt portfolio to long term resulting in reduction of domestic borrowing rates from 14% to 10%. It saved Rs. 240 billion

• j) Due to the reforms introduced by the government, Extended Fund Facility of $ 6 billion was approved by IMF

• k) In December 2019, Bloomberg has ranked Pakistan Stock Exchange as one of the top performing markets of the world

• l) Moody’s ratings upgraded from B3-Negative to B3-Positive

• m) Improvement in Pakistan’s “Ease of Doing Business” ranking

• n) Significant progress on 27 actionable items included in the FATF action plan

Covid 19 has changed all: Adverse impacts

Covid 19 has turned out to be a severe global economic threat, having the potential of destabilizing the international economic system. Pakistan was no exception as Corona virus adversely impacted the economy of the country. The immediate economic repercussions of Covid 19 for Pakistan during FY 2019-20 are highlighted as under;

• a) The Industry and the retail businesses all over Pakistan have been badly affected

• b) Economic growth has been reduced by Rs 03 trillion which brought down GDP growth projection from 3.3% to -0.4%

• c) Projection of over-all budget deficit has been revised upward from 7.1% to 9.1% of GDP

• d) FBR revenue loss has been projected at Rs 900 billion

• e) Non tax revenue of the federal government has been reduced by Rs 102 billion

• f) Exports and remittances have been badly affected

• g) Unemployment and poverty have increased

• h) Large scale manufacturing and FDI have declined

• i) Domestic tourism in Pakistan has stalled

Government Response: Economic Relief Packages

Government has stood up to the socio-economic challenge by reaching out to the vulnerable segments of the society and business community to neutralize the negative impact of lock down and unemployment. Government has approved a Stimulus Package of more than Rs 1,200 billion. In addition Government has given relief to farmers and daily wage earners. Incentives have been given to construction sector for stimulating the economy. State Bank of Pakistan has also introduced a number of initiatives for businesses to neutralize the negative impact of closures.

Budget Philosophy and Approach

The next year budget is undoubtedly a crisis budget and its preparation requires well thought out philosophy and approach. Following are the main features of the budget 2020-21 philosophy:

• a) Striking a balance between corona expenditure and fiscal deficit

• b) Keeping primary balance at sustainable level

• c) Protection of social spending under the Ehsaas Program to support the vulnerable segments of the society

• d) Resource mobilization without unnecessary changes in tax structure

• e) Successful continuation of IMF program

• f) Carrying forward of Stimulus Package

• g) Keeping development budget at adequate level to stimulate economic growth.

• h) Defence and internal security of the country has been given due importance.

• i) Housing initiatives including Naya Pakistan Housing project have been funded

• j) Funding for special areas i.e erstwhile FATA, Azad Jammu and Kashmir, Gilgit Baltistan has also been ensured for their development

• k) The special initiatives led by the Prime Minister like Kamyab Jawan, Sehat Card, Billion tree Tsunami etc have also been protected.

• l) Austerity and rationalization of expenditures will be ensured.

• m) Subsidy regime will be rationalized to provide targeted subsidy to the deserving segments of the society.

• n) NFC award will be revisited. Moreover, the provinces will be asked to fulfill its funding commitment made at the time of merger of erstwhile FATA.

Table - 1 BUDGET AT A GLANCE

FOR THE FISCAL YEAR 2020-21

(Rs. in Billion)

Table - 2

WORKING OF FEDERAL FISCAL DEFICIT AND FINANCING

BUDGET 2020-21

Table - 3

Budget Estimates 2020-21

TABLE - 4 FBR Taxes

(Rsin Million)

Revenues other than FBR

(Rsin Million)

TABLE - 6

DETAILS OF TRANSFERS TO PROVINCES

(Rsin Million)

DETAILS OF TRANSFERS TO PROVINCES

(Rsin Million)

TABLE - 7 CAPITAL RECEIPTS

(Rsin Million)

TABLE - 8 EXTERNAL RESOURCES

(Rsin Million)

EXPENDITURE OUTSIDE PSDP

(Rs in Million)

TABLE - 10 FUNCTION-WISE EXPENDITURE

(Rsin Million)

TABLE - 11 SUBSIDIES

(Rsin Million)

TABLE - 12 GRANTS AND TRANSFERS

(Rsin Million)

Contd….

GRANTS AND TRANSFERS

(Rsin Million)

TABLE - 13 CURRENT INVESTMENTS (Rs in Million)

TABLE - 14 DISTRIBUTION OF PSDP

(Rsin Million)

DISTRIBUTION OF PSDP

DISTRIBUTION OF PSDP

PART-II

DETAILED BUDGET ESTIMATES

TABLE - 1

FBR TAXES

(Rsin Million)

TABLE - 2

REVENUES OTHER THAN FBR

(Rsin Million)

REVENUES OTHER THAN FBR

Distribution of Resources Among Federation and Provinces 1 . Pakistan is a Federal democracy. In order to maintain inter-governmental fiscal relationship, Article 160 of the Constitution provides for setting up of a National Finance Commission (NFC) with intervals not exceeding five years. The mandate of NFC is to make recommendations to the President for the distribution of resources between the Federal and Provincial Governments. The recommendations of the NFC are given legal cover through a Presiden's Order. The relevant provisions of President's Order No. 5 of 2010 as amended vide No. 6 of 2015 are as under:

(i) Distribution of Revenues.- (1) The divisible pool taxes in each year shall consist of the following taxes levied and collected by the Federal Government in that year, namely:─

• (a) taxes on income;

• (b) wealth tax;

• (c) capital value tax;

• (d) taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed;

• (e) export duties on cotton;

• (f) customs duties;

• (g) federal excise duties excluding the excise duty on gas charged at well-head; and

• (h) any other tax which may be levied by the Federal Government.

• (2) 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.

(3) After deducting the amounts as prescribed in clause (2), of the balance amount of the net proceeds of divisible pool taxes, fifty-six percent shall be assigned to provinces during the financial year 2010-11 and fifty-seven and half percent from the financial year 2011-12 onwards. The share of the Federal Government in the net proceeds of divisible pool shall be forty-four percent during the financial year 2010-11 and forty-two and half percent from the financial year 2011-12 onwards.

(ii) Allocation of shares to the Provincial Governments.- (1) The Province - wise ratios given in clause (2) are based on multiple indicators. The indicators and their respective weights as agreed upon are:-

(2) The sum assigned to the Provincial Governments under Article 3 shall be distributed amongst the Provinces on the basis of the percentage specified against each:─

(3) The Federal Government shall guarantee that Balochistan province shall receive the projected sum of eighty-three billion rupees from the provincial share in the net proceeds of divisible pool taxes in the first year of the Award. Any shortfall in this amount shall be made up by the Federal Government from its own resources. This arrangement for Balochistan shall remain protected throughout the remaining four years of the Award based on annual budgetary projections.

(iii) Payment of net proceeds of royalty on crude oil.─ Each of the provinces 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 of crude oil in the Province in that year bears to the total production of crude oil.

(iv) Payment of net proceeds of development surcharge on natural gas to the Provinces.─ (1) Each of the Provinces 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. The average rate per MMBTU shall be derived by notionally clubbing both the royalty on natural gas and development surcharge on Gas. Royalty on natural gas shall be distributed in accordance with clause (1) of Article 161 of the Constitution whereas the development surcharge on natural gas would be distributed by making adjustments based on this average rate.

(2) The development surcharge on natural gas for Balochistan with effect from 1st July 2002, shall be re-worked out hypothetically on the basis of the formula given in clause (1) and the amount, subject to maximum of ten billion rupees, shall be paid in five years in five equal installments by the Federal Government as grants to be charged on the Federal Consolidated Fund. (v) Grants-in-Aid to the Provinces.- 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.

(vi) Sales tax on services.- NFC recognizes that sales tax on services is a Provincial subject under the Constitution of the Islamic Republic of Pakistan, and may be collected by respective Provinces, if they so desired.

(vii) Recently, the President has consituted 10th NFC Award for consideration on distribution of resources afresh.

(viii) Detail of Provincial share of Federal Taxes for budget estimates and revised estimated of 2019-20 and bdget estimates of 2020-21are given in table 3 below:-

TABLE - 3

DETAILS OF PROVINCIAL SHARE IN FEDERAL TAXES

(Rs in Million)

TABLE - 4

CAPITAL RECEIPTS

TABLE - 5

EXTERNAL RESOURCES

TABLE - 6

CURRENT EXPENDITURE

(Rsin Million)

TABLE - 7

FUNCTION WISE CURRENT EXPENDITURE

2. Current expenditure is divided into ten (10) functional items as per Charts of Accounts. Detail is as under :-

TABLE - 8

GENERAL PUBLIC SERVICE

3. Expenditure under above mentioned ten functions detail is as under :-

(Rsin Million)

TABLE - 9

DEFENCE AFFAIRS AND SERVICES

(Rsin Million)

TABLE - 10

PUBLIC ORDER AND SAFETY AFFAIRS

(Rsin Million)

TABLE - 11 ECONOMIC AFFAIRS

(Rsin Million)

TABLE - 12

ENVIRONMENT PROTECTION

(Rsin Million)

TABLE - 13

HOUSING AND COMMUNITY AMENITIES (Rs in Million)

TABLE - 14

HEALTH AFFAIRS AND SERVICES

(Rsin Million)

TABLE - 15

RECREATION, CULTURE AND RELIGION

(Rsin Million)

TABLE - 16

EDUCATION AFFAIRS AND SERVICES

(Rsin Million)

TABLE - 17

SOCIAL PROTECTION

(Rsin Million)

4. In addition to the above allocations under the Current Budget as per ten

classification heads, the Federal Govts provides funds for various purpose as under:-

5. In order to alleviate the impact of inflation on citizens, especially the poor segments of society, the Federal Government spends a fairly large sum on providing power and food subsidies.

TABLE - 18 SUBSIDIES

(Rsin Million)

Contd…..

SUBSIDIES

(Rsin Million)

6. Grants and Transfer to provinces and other entities are provided by the Federal Government. The detail is as under :-

TABLE - 19

GRANTS AND TRANSFERS (Rs in Million)

Contd…..

GRANTS AND TRANSFERS

(Rsin Million)

TABLE - 20

CURRENT LOANS & ADVANCES

(Rsin Million)

TABLE - 21

DEVELOPMENT LOANS AND ADVANCES

(Rsin Million)

TABLE - 22

CURRENT INVESTMENTS

SIZE OF PSDP

7. The Public Sector Development Programme (PSDP) is the main instrument for improving the socio-economic conditions in the country and achieving the macroeconomic and development objectives and targets set by the government, which yield maximum benefits in the shortest possible time for the society.

TABLE - 23

Public Sector Development Programme (PSDP) (Rs in Million)

Contd…….

SIZE OF PSDP

(Rsin Million)

Contd…….

SIZE OF PSDP

(Rsin Million)

TABLE - 24

EXPENDITURE OUTSIDE PSDP

(Rsin Million)