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�� Muhammad Waqas Muhammad Waqas Muhammad Waqas Muhammad Waqas Muhammad Waqas Muhammad Waqas Muhammad Waqas Muhammad Waqas Raza Siddiqui Raza Siddiqui Raza Siddiqui Raza Siddiqui Raza Siddiqui Raza Siddiqui Raza Siddiqui Raza Siddiqui

C.A Finalist, ICAP.C.A Finalist, ICAP.

Cell No. 0345 28 99 607Cell No. 0345 28 99 607

Email Id : Email Id : waqasrazas@hotmail.comwaqasrazas@hotmail.com

RERE--Engineering the Fiscal Budget of Engineering the Fiscal Budget of

PakistanPakistan

IntroductionIntroduction

The National Budgeting process of Pakistan fails to entertain and cater the national aspiration of the fiscal demands and people, hence severely disappoint year by year the people and the institutions of country every time. To fill this , this paper considers a number of Problem areas in Budgeting Policies, Processes, andPriorities along with concise yet clear indicative studies, it also discuss whether adopting such a budgeting system after revisiting the entire process can meet the country’s fiscal needs in an Endeavour which fulfill the demand and aspiration of Country and its fellow men, For sure Pakistan needs to redesign features and accommodate such into its budgeting system to ensure that it does so what stated above.

PoliciePoliciess

The policies that

are under examination in this study are of the vary primal in nature, the discussion would only revolve around the two basic cores of policies, first regarding Fiscal, Disarray of National Budgets, as have always been adopted and secondly the Diasporas the Pakistani economy have long been suffering from but still not addressed in Budgeting, causes not only the hindrances to economic growth but the entire fiscal Budgeting mechanism have always been the first and foremost sufferer.

PrioritiesPrioritiesThe The prioritiespriorities

that incubate to become the biggest that incubate to become the biggest obstaclesobstacles in not only the entire in not only the entire budgeting process but of the budgeting process but of the PakistanPakistan’’s slow and sluggish growth s slow and sluggish growth right from the independence are of right from the independence are of no dispute, however some may no dispute, however some may disagree beside being evident of the disagree beside being evident of the lethal affects of aforesaid, on other lethal affects of aforesaid, on other grounds purely of non economical grounds purely of non economical reasons along with of the little reasons along with of the little worth at the same time. The huge worth at the same time. The huge scale scale Defense expenditureDefense expenditure as as always been the biggest priority in always been the biggest priority in the books, along with the latest the books, along with the latest decay long development paralyzing decay long development paralyzing war against terror which affect war against terror which affect economy deeply in no time from the economy deeply in no time from the first day it was brought in the lands first day it was brought in the lands of pure.of pure.

ProcessesProcessesFinally, the Finally, the processesprocesses do cover only the do cover only the

aspects of fiscal resources or revenue generation arrangements, aspects of fiscal resources or revenue generation arrangements,

mainly and directly constitute of the mainly and directly constitute of the tax systemtax system of any country, of any country,

and the expenditure it does to attain the prospects and objects and the expenditure it does to attain the prospects and objects of of

budget.budget.

ConventionalConventional Fiscal Performance CycleFiscal Performance CycleIn any conventional fiscal cycle the role of In any conventional fiscal cycle the role of

Budget can be illuminated by the help of following simple yet Budget can be illuminated by the help of following simple yet powerful diagrammatic cycle, In context of Pakistan and our powerful diagrammatic cycle, In context of Pakistan and our aforesaid three pillars, of fiscal Budget we have considered, ifaforesaid three pillars, of fiscal Budget we have considered, if we we suppose the suppose the Long terms Structural Determinants, Contemporary Politics and Fiscal Institution in the given diagram equivalent to in the given diagram equivalent to respectively the respectively the PoliciesPolicies, , PrioritiesPriorities and and ProcessesProcesses of our study of our study manifestations, the picture would be quite clear and grasping. Tmanifestations, the picture would be quite clear and grasping. The he need to over tide the diagram with our assigned tags is to need to over tide the diagram with our assigned tags is to establish the vivid connection of our study with global perspectestablish the vivid connection of our study with global perspective ive which we are about to explore and construct.which we are about to explore and construct.

Chapter 01Chapter 01

National Fiscal DisarraysNational Fiscal Disarrays�� Fatal Mistakes , Fallacies in Public Policy MakingFatal Mistakes , Fallacies in Public Policy Making

Healthy people healthy countryHealthy people healthy country

Human Capital Neglected severely (Hospital and Training etc)Human Capital Neglected severely (Hospital and Training etc)

Sorry state of Education Sorry state of Education

Secure State or Scarce StateSecure State or Scarce State

Particularly, in case of PParticularly, in case of Pakistan, the foremost plight as always akistan, the foremost plight as always been of the been of the plight of Policiesplight of Policies,, The disarrays, from the policies undermining the socio The disarrays, from the policies undermining the socio economical important sectors being taken for granted such as Heaeconomical important sectors being taken for granted such as Health care, Education, lth care, Education, Justice and so on to the policies creating embargoes for afore sJustice and so on to the policies creating embargoes for afore said sectors by giving so aid sectors by giving so much importance to lesser deserving sectors. I called such are much importance to lesser deserving sectors. I called such are Fatal MistakesFatal Mistakes, always , always observed in setting the fiscal budgets and their directions, leaobserved in setting the fiscal budgets and their directions, leading to sluggish growth ding to sluggish growth in regions comparatively and lesser poverty reduction hence lessin regions comparatively and lesser poverty reduction hence lesser affective fiscal er affective fiscal developments developments

Planning Fiasco Conflict of Interests, Never been reducedPlanning Fiasco Conflict of Interests, Never been reduced

Unsustainable Growth, ReparationsUnsustainable Growth, Reparations

Sick orientation, Services or Manufacturing or Agricultural EconSick orientation, Services or Manufacturing or Agricultural Economy??omy??

Chapter 02Chapter 02

Fiscal DisastersFiscal Disasters in Pakistanin PakistanThe governments mainly relied on The governments mainly relied on

borrowing as the only measure of borrowing as the only measure of ““practical and political practical and political valuevalue”” for easing Pakistan's balancefor easing Pakistan's balance--ofof--payments difficulties. payments difficulties. But because the credibility was less than perfect, loans from But because the credibility was less than perfect, loans from international institutions and banking systems, in addition to international institutions and banking systems, in addition to interinter--governmental credits were mostly on a shortgovernmental credits were mostly on a short--term basis term basis and often with higher interest rates. When credibility and often with higher interest rates. When credibility worsened worsened --coupled with limited borrowing possibilities, coupled with limited borrowing possibilities, repayment of these accumulated shortrepayment of these accumulated short--term loans became a term loans became a real burden on the economyreal burden on the economy

CorruptionCorruption

InstabilityInstability

Unsustainable GrowthUnsustainable Growth

Chapter 03Chapter 03

Defense or Demise andDefense or Demise and

War against Terror or Economy??War against Terror or Economy??””Pakistan’s economy is under pressure of the War on Terror

intensifying for last four years in Afghanistan. Since 2006, the War has spread like a contagion into settled areas of Pakistan that has so far, cost the country more than 35,000 citizens,3500 security personnel, destruction of infrastructure, internal migration of millions of people from parts of northwestern Pakistan, erosions of investment climate, nose diving of production and growing unemployment and above all brought economic activity to a virtual standstill in many part of the country. Pakistan had never witnessed such devastating social and economic upheaval in its industry, even after dismemberment of the country by direct war.

1. Which are, at present, the main “technical” and "political” difficulties in the way of making progress towards obtaining international agreement s to reduce military expenditures?

2. What is the nature and scope of the interrelationship between “technical" and “political " elements with regard to agreement s to reduce military expenditures?

3. In which way might agreement s to reduce military expenditures be related to other disarmament agreements?

Chapter04 Chapter04 Economy craving Economy craving

Energy!Energy!The link between sustainable development andThe link between sustainable development and

energy will require even greater efforts for long term energy will require even greater efforts for long term energy security. Crisis management including installation of energy security. Crisis management including installation of rental power plants in the private sector and reduction of rental power plants in the private sector and reduction of peak demand through energy conservation and load peak demand through energy conservation and load management measures management measures

The sector which should have been the most The sector which should have been the most prioritized one, remain neglected for long, the ignorance prioritized one, remain neglected for long, the ignorance harvested country into darknessharvested country into darkness

Chapter 05Chapter 05

Borrowings in fact Burrowing Borrowings in fact Burrowing

to Ditchto DitchAlthough somewhat insulated from the financial crisis, Although somewhat insulated from the financial crisis,

Pakistan too has witnessed a rise in public debt in the recent pPakistan too has witnessed a rise in public debt in the recent past. Fiscal ast. Fiscal profligacy in the shape of large subsidies, policy inaction withprofligacy in the shape of large subsidies, policy inaction with regards to regards to rising oil prices in 2007, weak revenue collection, pressure on rising oil prices in 2007, weak revenue collection, pressure on budgetary budgetary resources placed by a heightened security situation, and effortsresources placed by a heightened security situation, and efforts to to eliminate the inter corporate debt in the energy sector, have leeliminate the inter corporate debt in the energy sector, have led to d to relatively rapid increase in public debt. The cumulative effect relatively rapid increase in public debt. The cumulative effect of the of the depreciation of the Rupee against the US dollar, on the one handdepreciation of the Rupee against the US dollar, on the one hand, and the , and the weakness of the US dollar against third currencies in which a siweakness of the US dollar against third currencies in which a significant gnificant portion of Pakistanportion of Pakistan’’s external public debt is denominated, have also played s external public debt is denominated, have also played a substantial part in the overall increase.a substantial part in the overall increase.

The total public debt stood at Rs.8,8The total public debt stood at Rs.8,894 billion as of June 94 billion as of June 30, 2010, an increase of Rs. 1,265 billion or 16.6percent higher30, 2010, an increase of Rs. 1,265 billion or 16.6percent higher than the than the debt stock at the end of last fiscal year. Government borrowed Rdebt stock at the end of last fiscal year. Government borrowed Rs.798 s.798 billion from domestic sources and Rs. 189 billion from external billion from domestic sources and Rs. 189 billion from external sources to sources to finance the fiscal operations. Additionally, government borrowedfinance the fiscal operations. Additionally, government borrowed SDR SDR 2,145 million or Rs. 271 billion from IMF for balance of payment2,145 million or Rs. 271 billion from IMF for balance of payment support support (that included budget support under the bridge financing facilit(that included budget support under the bridge financing facility) and y) and incurred an exchange loss of Rs. 200 billion on the external debincurred an exchange loss of Rs. 200 billion on the external debt portfolio t portfolio owing to rupee depreciation against US dollar. The Pak Rupee depowing to rupee depreciation against US dollar. The Pak Rupee depreciated reciated by 5 percent during FY2010 compared to 19.2 percent in FY2009.by 5 percent during FY2010 compared to 19.2 percent in FY2009.

Chapter 06Chapter 06

Original Sin, Tax evasionOriginal Sin, Tax evasionThe most corrupt departments in Pakistan The most corrupt departments in Pakistan are the tax are the tax

departments. "FBR has the reputation of being corrupt, besides bdepartments. "FBR has the reputation of being corrupt, besides being one eing one of the most politicized departments of the Government of Pakistaof the most politicized departments of the Government of Pakistan. From n. From the office of the chairman to middle and lower ranks, appointmenthe office of the chairman to middle and lower ranks, appointments are ts are made in FBR on political and financial considerations. One frequmade in FBR on political and financial considerations. One frequently ently comes across people in Islamabad with offers of money for appoincomes across people in Islamabad with offers of money for appointments tments or postings in departments under the jurisdiction of FBR. The amor postings in departments under the jurisdiction of FBR. The amount that ount that these people offer, even for a clerical job in customs, income tthese people offer, even for a clerical job in customs, income tax or other ax or other subordinate departments give a measure of corruption and graft isubordinate departments give a measure of corruption and graft in FBR. . n FBR. . . It is thus not mere coincidence that the chairman of FBR has i. It is thus not mere coincidence that the chairman of FBR has invariably nvariably been the first to go with each change of government since 1988 been the first to go with each change of government since 1988

The level of tax evasion was about Rs.1.The level of tax evasion was about Rs.1.5 billion in 1973, 5 billion in 1973, which tremendously increased to Rs.152 billion in 1996. It is alwhich tremendously increased to Rs.152 billion in 1996. It is also so noteworthy that "the underground economy grew faster than the fonoteworthy that "the underground economy grew faster than the formal rmal economy. The underground economy grew annually at the rates of aeconomy. The underground economy grew annually at the rates of about bout 27 percent, 14 percent, and 26 percent in 1970s, 1980s, and 199027 percent, 14 percent, and 26 percent in 1970s, 1980s, and 1990s s correspondingly while growth rates in the formal economy for thecorrespondingly while growth rates in the formal economy for the same same subsub--periods were about 18 percent, 14 percent, and 17 percent." periods were about 18 percent, 14 percent, and 17 percent."

Chapter 07 Chapter 07

Considerations,Considerations,

in Public sector finance in Pakistanin Public sector finance in Pakistan

�� Recommendation in Recommendation in ““National Fiscal DisarraysNational Fiscal Disarrays””

�� Healthy people healthy countryHealthy people healthy country

�� Human Capital Development Human Capital Development

�� Prioritizing of EducationPrioritizing of Education

�� Suggestions by the chapter Suggestions by the chapter ““Fiscal Disasters in PakistanFiscal Disasters in Pakistan””

�� Branding Outlook Branding Outlook

�� StabilityStability�� DemocracyDemocracy

�� Legal EnforcementLegal Enforcement

�� ExpectationExpectation

�� Fiscal Corruption Control MeasuresFiscal Corruption Control Measures

�� Absence of unified common greater nationalist agenda, like in USAbsence of unified common greater nationalist agenda, like in US�� Viability of Economical SuccessionViability of Economical Succession

�� These are some recommendations in " Defense or These are some recommendations in " Defense or Demise And War against Terror or Economy??Demise And War against Terror or Economy??””

�� You can Change your Enemy but not your neighborsYou can Change your Enemy but not your neighbors””�� Reduce Huge defense ExpenditureReduce Huge defense Expenditure

�� Save such Opportunity Cost of Such Huge Scale Resource Burning Save such Opportunity Cost of Such Huge Scale Resource Burning

�� Rigorous allRigorous all--round debate, whether This US led war is, war against Terror or round debate, whether This US led war is, war against Terror or EconomyEconomy

�� It Became inevitable as per chapter "Economy craving It Became inevitable as per chapter "Economy craving Energy!Energy!””, that, that

�� To improve supplyTo improve supply--demand balance through additional leastdemand balance through additional least--cost power generation, cost power generation, bottleneck transmission and distribution systems;bottleneck transmission and distribution systems;

�� Reduce subsidies and allowing cost recovery tariffs by distributReduce subsidies and allowing cost recovery tariffs by distribution companies; ion companies;

�� Inject cash into the sector to stem asset deterioration; strengtInject cash into the sector to stem asset deterioration; strengthen corporate hen corporate governance by governance by

�� Discharging ownership responsibilities; andDischarging ownership responsibilities; and

�� Toughen sector policies and regulations.Toughen sector policies and regulations.

�� Strongly recommended in "Borrowings not Strongly recommended in "Borrowings not

burrowing to ditchburrowing to ditch””, for deficit , for deficit

financingfinancing……

� International Trade

� Debt re sheduling

� Forex Exchange measures

� Major recommendation for “Original Sin, Tax evasion”

� Levie tax on basis of paying as much as earning

� Measures to extend Tax net